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We expect further rate cuts during the rest of the year.
2024/06/14 | Andrés Pérez M. & Julio Ruiz.

In its June meeting, the Central Bank of Peru (BCRP) kept its policy rate unchanged at 5.75%, above both - our call and market consensus of 5.50%. This is the second monetary pause in the year (first one was in March) that surprised market consensus. The statement kept the doors open for further rate adjustments depending on inflation and its determinants. The central bank kept its reserve requirement rate unchanged at 5.50%.


The monetary pause came despite well-behaved inflation and expectations. Headline inflation surprised to the downside in May (-0.09% versus consensus of 0.12%) reaching the target of 2.0%, on annual basis, while core annual inflation is at 3.10% (close to the upper bound target range of 3.0%). The central bank expects annual inflation to remain around the central target. Twelve-month inflation expectations also fell to 2.56% in May (from 2.62% in April) taking the real ex-ante rate to 3.19%, above the neutral rate of 2.0%.


Our take:  We expect the central bank to continue easing its monetary policy stance during the rest of the year amid well-behaved inflation and below trend activity. While the narrowing of the BCRP-Fed rate differential might suggest limited scope for rate cuts ahead, recent comments by the central bank president suggest that the policy rate could fall below the FFR, increasing the odds of further rate cuts. Our end of year policy rate forecast is at 5.00%, which imply three more rate cuts of 25-bp during the rest of the year.