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Peru Monetary Policy August 2023

Peru: Central Bank keeps rates unchanged in August

At its 10 August meeting, the Central Bank of Peru (BCRA) kept its key policy interest rate unchanged at 7.75%, where it has been since January.

The decision not to hike further was driven by declining headline inflation, core inflation and market inflation expectations, and by the Bank’s view that price pressures would continue to trend down going forward. That said, with inflation still well above the Bank’s target range of 1.0–3.0%, it was premature to begin monetary easing.

The Bank did not give explicit forward guidance in its press release. Most of our panelists seen rate cuts ensuing at the Bank’s 14 September meeting in line with an expected ongoing decline in inflation, though some panelists see the BCRA waiting until Q4 to cut rates. The discrepancy among analysts is wide, with a 200 basis point spread among end-2023 forecasts.

Goldman Sachs analysts, who are among the more dovish of our panelists, said:

“In an important innovation, the MPC dropped the hawkish statement from previous communiques that ‘[the decision to hold] does not necessarily imply the end of the [tightening] cycle,’ which we interpret as an implicit signal that the MPC is setting the stage to start the normalization of the policy stance, potentially as early as September (our baseline scenario).”

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