In its October meeting, the Central Bank of Peru (BCRP) unexpectedly maintained the policy rate at 5.25%, surprising market consensus and our call for a 25 bp cut. The decision comes after two consecutive months of 25 bp cuts. The surprise takes place in the context of several out of consensus decisions by the BCRP throughout the easing cycle that has totaled 250-bps. 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. In our view, the unexpected pause might be explained by the recent bout of global financial volatility and higher oil prices, both mentioned in the statement.
Headline inflation has been within the target range (2+/-1%) for six consecutive months, and core inflation fell within the range since August. Headline and core inflation stood at 2.03% and 2.78% in September, respectively. The central bank expects annual inflation to remain around the center of the target but envisages a transitory bounce in headline inflation during 4Q24 due to base effects . Twelve-month inflation expectations remained essentially unchanged with respect to the previous month in September, at 2.43%. Following the decision, the one year real ex-ante rate remained at 2.82%, still above the 2.0% neutral real rate.
Our take: Despite the surprise, the BCRP has made substantial progress in bringing the policy rate closer to neutral over the course of the last year. We believe the central bank is likely to deliver at least one additional cut in 2024, in the context of well-behaved inflation and inflation expectations that are gradually converging to the target. Our year-end 4.75% policy rate call is biased to the upside. The next monthly monetary policy meeting is scheduled for November 7.
Andrés Pérez M.
Vittorio Peretti
Andrea Tellechea