Itaú BBA - PERU – Monetary Policy Decision: Hikes this year becoming less likely

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PERU – Monetary Policy Decision: Hikes this year becoming less likely

mayo 10, 2019

Trade wars on BCRP radar again.

The Central Bank of Peru (BCRP) decided to keep the reference rate at 2.75% in May, in line with both our and market expectations (Bloomberg). The board expects annual inflation around the 2% central bank target. As in previous communication, the BCRP believes that it is appropriate to maintain an expansionary monetary policy as long as inflation expectations remain anchored in a context of activity below potential.

Trade wars on BCRP radar again. The statement highlighted a higher volatility in international financial markets due to trade tensions (associated to recent developments in the US/China trade war), while maintained a cautious stance on global economic activity. Regarding economic activity, the Board noticed that non-primary economic indicators still show signs of dynamism, but primary activity is weak. 

We now expect the central bank to stay on-hold throughout this year (previously we saw two rate hikes by 4Q19). Given the weaker growth in the core economies, the more accommodative stance of the Fed, controlled inflation and the recent trade war developments, we believe that the central bank can afford to wait more before removing its stimulus until it has a clearer view on the economic outlook.


 

Julio Ruiz



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