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Barclays Calling For Easing Pace To Be Accelerated This Week

PERU
  • The majority of analysts believe the BCRP will continue with its easing cycle by delivering another 25bp reference rate cut to 7.00%. However, the substantial downside surprise in the latest inflation data has prompted Barclays to forecast a bolder 50bp rate cut (details below). A full MNI preview of the decision with several sell-side views will be published on Wednesday
  • Peru fell back into deflation territory this month, and Barclays’ economists now expect the BCRP to accelerate the pace of cuts to 50bp at Thursday's meeting. Barclays say this is also supported by soft economic activity.
    • Given that the main driver of the deterioration of the growth outlook seems to be business confidence, monetary policy might have a limited capacity to re-activate the economy; nonetheless, it could at least provide a stimulus for consumption.
    • Therefore, Barclays think the BCRP could accelerate the pace of easing and cut by at least 50bp at its November 9 meeting to bring the policy rate to 6.75%; depending on how domestic and external conditions evolve, it could reassess its approach in December.
    • Markets are likely to keep 25bp on the table, however, as most central banks have scaled back on the pace of cuts out of caution on the higher-for-longer narrative.
    • Either way, the central bank has to deliver further cuts, as the domestic outlook is bleak and, with external relief, Barclays see room for Soberano yields to go lower. The PEN also has room to continue to rally.
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