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BBVA Cannot Rule Out Further Tightening In February

PERU
  • In real terms (adjusted for twelve-month inflation expectations), the reference rate came to stand at 3.45%, thus entering restrictive territory.
  • The statement from the central bank indicates that this increase in total inflation is related to the price of food and that since March its trend will be downward. It is a message of transience, however, that same message leaves open the possibility that in the very short-term headline inflation will continue to rise.
  • BBVA’s base scenario, including the persistence of supply shocks (weather anomalies, lags in high prices of fertilizers, and in recent weeks difficulties in transporting food), considers that total inflation will rise in the first two months of the year. This creates a risk that the timid and incipient declines in core inflation and inflation expectations by the end of 2023 reverse, further complicating the pricing picture.
  • It is in this environment that the central bank decided to hike again and it is this same environment that does not allow BBVA to rule out that it will do it again in February, especially if the increase in headline inflation that they anticipate for the short term is relatively marked or if there is effectively an upward reversal in core inflation or inflation expectations by the end of 2023.
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