Itaú BBA - PERU – Monetary Policy Decision: rate cuts on the horizon

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PERU – Monetary Policy Decision: rate cuts on the horizon

junio 14, 2019

The BCRP highlights softer economic activity

The Central Bank of Peru (BCRP) decided to keep the reference rate at 2.75% in June, 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.

 The BCRP highlights weaker economic activity in the primary and non-primary sectors. The Board noted that primary economic activity show signs of negative performance due to transitory shocks, while non-primary indicators reflect moderation, mainly due to a delay in public investment execution, which the BCRP expects to recover during the second half of the year. Regarding the external environment, the statement highlighted increased volatility in financial markets due to an intensification of trade tensions (associated to developments in the US/China trade war), while maintained a cautious stance on global economic activity.

We expect the central bank to cut the policy rate during the second half of 2019 (to a level of 2.25% with two 25-bp rate cuts) and to keep it at that level through 2020. We expect the BCRP to continue to ease its monetary policy stance in response to disappointing economic activity. Rate cuts by the Fed would also give the BCRP room to act.
 

Julio Ruiz



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