Itaú BBA - PERU – Monetary Policy Decision: the BCRP cut its policy rate 25-bp

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PERU – Monetary Policy Decision: the BCRP cut its policy rate 25-bp

agosto 9, 2019

The BCRP didn’t close the door for additional cuts, but they are not granted.

The Central Bank of Peru (BCRP) decided to cut its policy rate 25-bp in August, to reach a rate of 2.50%, in line with our forecast and market expectations (as per Bloomberg). The Board noted that primary economic activity show signs of negative performance due to transitory shocks, while the Board was more pessimistic (compared to last statement) on non-primary economic activity. Regarding the external environment, the reference to risks on global economy was kept in the statement, while the central bank highlighted more volatility in financial markets recently due to trade conflicts. 

The BCRP didn’t close the door for additional cuts, but they are not granted. The BCRP underscored that this month’s decision doesn’t necessarily imply additional cuts. However, the statement continues to mention that the Board will monitor inflation and its determinants to evaluate adjustments to its policy stance (effectively an easing bias).

Moreover, the BCRP kept the balance of risk for inflation tilted to the downside. The BCRP expects inflation to be kept around the central bank’s target (2.0%), but with a downside bias due to the possibility of a lower than expected internal demand growth. The Board added that business confidence indicators continued to moderate in July, while non-primary indicators show a more gradual close of the output gap.  

We expect the central bank to cut the policy rate 25-bp one more time during the second half of 2019 (to reach a level of 2.25%) 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, amid monetary policy loosening in the U.S. (especially important for Peru’s partially dollarized economy).  
 

Julio Ruiz



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