Peru: Central Bank of Peru leaves rates unchanged in October
Central Bank stands pat as expected: At its meeting on 9 October, the Central Bank of Peru (BNRP) decided to maintain the reference interest rate at 4.25%, following a 25 basis point cut in September. The hold was in line with market expectations.
Soft inflation and strong GDP growth underpin hold: On one hand, the BNRP likely decided not to hike rates as consumer price growth stayed in the lower bound of the Central Bank’s 1.0–3.0% target range in September. Moreover, inflation expectations remained well-anchored and the Bank projects inflation will approach the mid-point of the target range by the end of the year.
On the other hand, a rate cut was not warranted given economic activity is near potential. In addition, the BNRP likely wished to assess the full impact of the cumulative 350 basis points of rate reductions since late 2023. Elevated international uncertainty further supported a wait-and-see approach.
Bank to cut rates once more before ending easing cycle: The Central Bank provided no explicit forward guidance on future interest rate moves. Our Consensus is for a 25 basis point cut by end-2026, with some panelists seeing rates on hold and a few seeing room for a deeper 50 basis-point cut. The reference interest rate is then seen roughly stable from 2027 through our forecast horizon to 2030. The BNRP will reconvene on 13 November.
Panelist insight: On the outlook, Goldman Sachs’ Santiago Tellez said:
“We maintain our view that the policy rate is likely to remain at 4.25% for the foreseeable future. With a largely closed output gap, well-anchored inflation expectations, and a policy stance virtually in neutral territory, there is limited urgency to either address inflationary pressures or stimulate economic growth. We see the risks to our 2025 growth forecast of 3.0% featuring a modest upside bias. This, coupled with rising short-term political uncertainty, sets a relatively high hurdle to bring the policy stance below neutrality in upcoming meetings.”
However, EIU analysts took a different view:
“The BCRP is approaching the end of a monetary-easing cycle that began in late 2023, but still has room for some more cuts. Inflation and 12-month inflation expectations have been comfortably within the BCRP’s 1-3% target band for more than a year and the current policy rate of 4.25% is still above (albeit near) Peru’s neutral rate. As the Fed resumed interest-rate cuts in September, we expect that this will give room for the BCRP to cut rates gradually by 50 basis points until it reaches a terminal, neutral rate of 3.75% by mid-2026.”