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Analysts Continue To Expect 25BP Easing Pace Following CPI Surprise

PERU
  • Consumer prices registered a decline of 0.32% in October, bringing the annual headline rate to 4.34% Y/y, well below the surveyed median forecast of 4.88%. Despite the favourable reading, and the declining core inflation rate (3.32%), analysts appear comfortable with the BCRP continuing with its 25bp easing pace going forward.
  • * Itaú: “Our inflation forecast for end of this year stands at 3.8%. Lower inflation amid weak activity is consistent with the central bank cutting further its policy rate at the same pace (25 bps) in each of the last two meetings of the year, reaching a level of 6.75%.”
  • * Deutsche Bank: The 70bp decline in annual headline CPI between September and October increases the ex-post real rate above the neutral rate to 2.9% even if BCRP validates DB’s expectation of another 25bp cut in October. However, the typically transient nature of the decline of food prices along with tighter external financial conditions should prod BCRP to preserve the gradual pace of the loosening cycle, in Deutsche’s view. A more aggressive cut may trigger a recalibration of expectations regarding BCRP’s future actions that may backfire in the context of tighter external financial conditions, with eventual implications for Peru’s inflation outlook.
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