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Peru Monetary Policy March 2024

Peru: Central Bank pauses its easing cycle in March

At its 7 March meeting, the Central Bank of Peru (BCRP) kept its key policy interest rate unchanged at 6.25%, following six consecutive cuts. This surprised markets, which had expected a further reduction.

The BCRP’s decision to pause its easing cycle was due to February’s inflationary upturn. Inflation rose to 3.3% in February from January’s 3.0%, and the Bank’s measure of inflation without food and energy prices accelerated to 3.1% in February from 2.9% in the previous month. Meanwhile, 12-month inflation expectations picked up marginally from 2.64% to 2.65%, although they remained within the Bank’s 1.0-3.0% target range for the third consecutive month. That said, the Bank expects inflation to resume its downtrend in the next few months and sees the upside risk associated with the El Niño weather event as having 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. All our panelists see further rate cuts this year in line with a projected decline in inflation. The next monetary policy meeting is scheduled for 11 April.

Commenting on the release, Itaú Unibanco’s Andrés Pérez and Julio Ruiz stated:

“We think that the main reason behind the pause in the easing cycle could be associated to currency depreciation given the narrowing of the rate differentials and the expectation of a delayed start of the Fed easing cycle. Our end of year policy rate forecast of 5.00% has an upward bias.”

Meanwhile, Credicorp Capital’s Luis Ortega commented:

“We still believe that the BCRP will continue to monitor the external rate environment, particularly the BCRP vs FED rate differential (today: 75 basis points), in the context of a transitory acceleration of inflation and a negative output gap with a fairly restrictive real rate. Likewise, we maintain our outlook for the BCRP rate to close 2024 between 4.5%-5.0%.”

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