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BBVA On The BCRP Decision

PERU
  • Regarding the future evolution of inflation, the Central Bank now expects it to return to the target range in the second half of next year (before: between the second and third quarters) thanks to the moderation of the effect of international food and energy prices, as well as a reduction in inflation expectations.
  • The BCRP was more cautious about the global environment, noting that growth prospects of world economic activity for this and next year have been declining due to the expectation of reversal of stimuli in advanced economies, international conflicts, and the persistence of bottlenecks in the global supply of goods and services, despite some improvement in recent months.
  • BBVA Research believe that if the downward trend shown by the prices of agricultural commodities and fuels will help moderate inflationary pressures and, in this context, anticipates that inflation expectations will continue to decline.
  • It should be noted that with today's adjustment the position monetary policy is already approaching a neutral level: the Central Bank estimates that the neutral real interest rate is 1.50% and currently this rate stands at 1.34% (calculated as the difference between a policy rate nominal rate of 6.50% and inflation expectations of 5.16%).
  • However, BBVA expect inflation levels are still going to remain well above the upper limit of the target range and in the last reading inflation without food and energy, a more trending measure of price developments, accelerated to 5.4 percent. Therefore, BBVA do not rule out that the Central Bank continues to raise the reference rate somewhat more in the remainder of the year.
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  • Regarding the future evolution of inflation, the Central Bank now expects it to return to the target range in the second half of next year (before: between the second and third quarters) thanks to the moderation of the effect of international food and energy prices, as well as a reduction in inflation expectations.
  • The BCRP was more cautious about the global environment, noting that growth prospects of world economic activity for this and next year have been declining due to the expectation of reversal of stimuli in advanced economies, international conflicts, and the persistence of bottlenecks in the global supply of goods and services, despite some improvement in recent months.
  • BBVA Research believe that if the downward trend shown by the prices of agricultural commodities and fuels will help moderate inflationary pressures and, in this context, anticipates that inflation expectations will continue to decline.
  • It should be noted that with today's adjustment the position monetary policy is already approaching a neutral level: the Central Bank estimates that the neutral real interest rate is 1.50% and currently this rate stands at 1.34% (calculated as the difference between a policy rate nominal rate of 6.50% and inflation expectations of 5.16%).
  • However, BBVA expect inflation levels are still going to remain well above the upper limit of the target range and in the last reading inflation without food and energy, a more trending measure of price developments, accelerated to 5.4 percent. Therefore, BBVA do not rule out that the Central Bank continues to raise the reference rate somewhat more in the remainder of the year.