Central Bank delivers sixth consecutive rate reduction in February

At its 8 February meeting, the Central Bank of Peru (BCRP) reduced its key policy interest rate to 6.25% from 6.50%—its sixth consecutive cut—as expected by markets.

The decision to further ease the monetary policy stance was driven by declining headline and core inflation, as well as falling inflation expectations. Additionally, the Bank expects inflation to continue its downtrend in the next few months and estimates that upside risks associated with the El Niño weather event have moderated. Meanwhile, economic indicators continue to hint at sluggish activity.

The Bank did not give explicit forward guidance in its press release; it reiterated that future adjustments to the reference rate would be conditional on new information relating to inflation and its determinants. Most of our panelists see further rate cuts this year in line with a projected decline in inflation. The next monetary policy meeting is scheduled for 7 March.

Commenting on the outlook, Credicorp Capital’s Luis Ortega stated: “We expect the Central Bank to adopt a ‘pause-cut-pause’ scheme during Q2 2024. At the same time, the institution continues to monitor the environment of external rates, with a particular focus on the BCRP vs. FED key rate spread, especially if the exchange rate remains above PEN 3.80 per USD. Hence, we expect BCRP to cut its policy rate to a level between 4.50%-5.00% for year-end. The terminal level could be lower only if the FED decides to lower its policy rate by more than the 100 basis points considered in our base scenario.”

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