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Our end of next year policy rate is at 5.00%.
2023/12/15 | Andrés Pérez M. & Julio Ruiz



In its December meeting, the Central Bank of Peru (BCRP) cut its policy rate by 25-bp to 6.75%, in line with our forecast and market expectations (as per Bloomberg). No changes were made in the forward guidance, noting the decision does not necessarily imply further consecutive rate cuts. Future rate adjustments will be dependent on inflation evolution and its determinants. Including today's decision, the BCRP has cut at a 25-bps pace for the past four consecutive meetings, taking the total amount of cuts to 100-bps.

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 November expected one-year ahead inflation at 3.15% (from 3.33% in October), taking the real ex-ante policy rate to 3.6%, still above the neutral real rate of 2.0%. The statement noted mixed leading activity indicators in November, also acknowledging the risk of lower growth in China.

Weak activity and a string of low CPI prints, in addition to the shift in Fed's guidance, will likely lead the BCRP to continue easing at the same pace during the 1H24. Our 2024 yearend policy rate forecast is at 5.00%.