Peru: Central Bank of Peru decreases rates in August
Latest bank decision: At its meeting on 8 August, the Central Bank of Peru (BCRP) decided to reduce the reference interest rate by 25 basis points to 5.50%, contrasting market expectations of a hold.
Monetary policy drivers: The decision to lower rates was influenced by under-control price pressures. Headline inflation was within the Bank’s 1.0-3.0% target range for five straight months up to July. Moreover, core inflation trended down over the same period, while the Bank commented that twelve-month inflation expectations had also declined.
Policy outlook: The Central Bank provided no explicit forward guidance on the future direction of interest rates, though our panelists see further rate cuts later this year in line with projections for inflation to remain within the 1.0-3.0% target range.
Panelist insight: On the outlook, Goldman Sachs’ Santiago Tellez said:
“We anticipate that the MPC will accommodate at least three more 25bp cuts during this cycle for a terminal rate of 4.75%. Nevertheless, we see the risks to these forecasts as now tilted towards a more frontloaded adjustment than what we currently have penciled in (one more cut in 2024, two in 2025). Ultimately, the timing of these cuts will depend on the stability of the PEN, the resumption of the downward trajectory of core and services inflation, and potentially the resolution of the uncertainty about the pace of cuts by the Fed.”