In its November meeting, the Central Bank of Peru (BCRP) cut the policy rate by 25 bp to 5.00%, in line with market consensus. In contrast to previous communiqués, the statement explicitly mentions that the decision takes the real rate close to neutral, and does not imply a cycle of successive cuts. The statement repeated the data dependent guidance, keeping the door open for further rate adjustments depending on inflation (emphasizing the core index) and its determinants.
Headline inflation has been within the target range (2+/-1%) for seven consecutive months, and core inflation fell within the range since August. Headline and core inflation stood at 2.0% and 2.5% in October, respectively. The central bank expects annual inflation to remain around the center of the target in the forecast horizon but envisages a transitory bounce in headline inflation during 4Q24 due to base effects, as was mentioned in the previous statement. Twelve-month inflation expectations remained slightly below 2.5% in October, which would take the one year real ex-ante rate to roughly above 2.50%, edging closer to the 2.0% neutral real rate.
Our take: We interpret the additional text in the BCRP’s statement as signaling that an end to the easing cycle may be nearer than expected, unless inflation expectations edge down further towards the 2% inflation target. In this context, we believe the BCRP is likely to pause in December; our year-end 4.75% policy rate call is biased to the upside. The next monthly monetary policy meeting is scheduled for December 12.