In its November meeting, the Central Bank of Peru (BCRP) cut its policy rate by 25-bp to 7.00%, in line with our forecast and market expectations (as per Bloomberg). As in previous statements, the BCRP noted the decision does not necessarily imply further consecutive rate cuts. Future rate adjustments will be dependent on inflation evolution and its determinants.
While the central bank expects annual inflation to reach the ceiling of the 1-3% inflation target at the beginning of next year, the central bank noted upside risks associated to harsh weather conditions (referring to the El Niño phenomenon). Analysts surveyed by the BCRP in October expected one-year ahead inflation at 3.3% (from 3.4% in September), taking the real ex-ante policy rate to 3.7%, still above the neutral real rate of 2.0%. The statement highlighted a deterioration in October’s activity leading indicators, also acknowledging a larger than expected impact on internal demand from social conflicts and el Niño weather phenomenon.
We expect the central bank to continue easing its monetary policy stance, at the same pace, in the last meeting of the year (reaching a level of 6.75%), continuing until July 2024 (our end of 2024 policy rate forecast is at 5.00%). In our view, weak activity amid falling inflation supports our call.