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Analyst Views on May CPI & BCRP

PERU
  • *JPMorgan expect the BCRP to trim the policy rate again by 25bp, to 5.5%. The monetary authority has reiterated it will continue to cut the policy rate, independently of whether the Fed does so. A narrower interest rate differential may cause periods of downside pressure on the currency, but the BCRP has reiterated its willingness to intervene if need be. Of note, the BCRP has an outstanding position for PEN55.5bn (equivalent to US$14.2bn) in FX swaps. In JPM’s central scenario, the policy rate converges to 4.75% by year-end, and terminal level sits at 4.25% by mid-2025.
  • *Goldman Sachs: Aided by a restrictive monetary policy stance, a negative output gap, and modest wage growth, GS expect headline and core inflation pressures to remain contained in the remainder of the year. Still, less favourable base effects imply that annual inflation can transitorily edge up, fluctuating within the target band. In all, GS view the benign inflation backdrop as supportive of the continuation of the current cutting cycle.
  • *BBVA: The reading is the lowest in more than three years and follows BCRP Governor Julio Velarde’s comments ahead of the data that suggested further disinflation. Velarde had also suggested Peru could potentially cut rates below the Fed. The bank will meet on 13 June, where additional cuts are expected to keep lowering PEN forward points and weigh on a currency that otherwise remains resilient and at the richer end of the USDPEN3.60-3.90 area we prefer to trade.
  • *Scotiabank: With the June 13 rate cut practically locked in, it’s of much greater interest to see what the BCRP thinks about continuing this back-to-back pace of reductions. At least as far as BCRP Velarde is concerned, there’s not a lot of concern about the reference rate falling well below the Fed’s.
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