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Peru Monetary Policy January 2024

Peru: Central Bank cuts rates again in January

At its 11 January meeting, the Central Bank of Peru (BCRP) reduced its key policy interest rate to 6.50% from 6.75%, delivering its fifth consecutive cut.

The decision to further ease the monetary policy stance was driven by declining headline and core inflation, as well as falling market inflation expectations. Additionally, the Bank expects inflation to move within the Bank’s target range of 1.0–3.0% in the next few months. Meanwhile, economic indicators continue to hint at subdued activity due to the El Niño weather phenomenon and social unrest, further pushing the Bank to cut rates to support the economy.

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 on 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 8 February.

Commenting on the outlook, Luis Ortega, analyst at Credicorp Capital, stated:

“We expect the Central Bank to continue lowering its rate by 25 basis points in the coming months, closing Q1 2024 at 6.0%. Following this, we do not discard the institution adopting a ‘stop-cut-stop’ scheme, evaluating the economic rebound and aiming for a monetary policy rate between 4.5% and 5.0% by December 24. Despite this, the policy rate would end this year above its neutral level and 2003-2019 average (3.67%). Only if the FED cuts its policy rate aggressively below 4% (not our baseline scenario), the Central Bank of Peru could decide to cut its policy further than our expectation.”

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