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BBVA Do Not Rule Out Additional BCRP Rate Hikes This Year

  • The Central Bank showed greater concern about global economic activity by pointing out that the prospects for growth, for this and next year, have been declining due to the expectation of higher rates in advanced economies, the lower growth of China and the international conflicts.
  • The reference rate, in real terms (adjusted for twelve-month inflation expectations), is now 2.11% (1.65% in September). This level is located above that which the Central Bank considers "neutral" (1.50%, real rate that neither stimulates nor decelerates economic activity). In this sense, monetary policy has adopted a clearly restrictive position, despite the fact that economic activity has been slowing down.
  • However, the monetary adjustment would be explained by an environment in which total inflation and inflation excluding food and energy remain elevated and show some resistance to descend. This persistence of pressures on the prices could eventually contaminate inflation expectations and complicate the return to the target range.
  • The statement does not provide further guidance on future action, but emphasizes that these will be taken on the basis of the new economic information. While y/y inflation is likely to resume a downward trend in October, BBVA perceive that the BCRP will also take into account the speed at which it decreases. In this context, BBVA do not rule out that the Central Bank makes any additional adjustments to the policy rate in the remainder of 2022.

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