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BBVA Say BCRP Have Limited Room To Start Lowering Rates

PERU
  • BBVA note that disinflation has begun although more slowly than expected, mainly affected by renewed supply shocks. Their research team continue to project that the decline will continue in the coming months. However, the probability that this decline will be somewhat slower than expected, particularly in the short term, has increased.
  • The weather anomaly will continue to affect the supply of some foods, OPEC's recent announcement of cuts in oil production could have an impact on local fuel prices, and the core component of inflation shows difficulties in abating.
  • A slower decline in inflation could also affect inflation expectations. In this context, BBVA continue to anticipate that inflation will end the year at around 3.5%, but the upward bias of this projection has been accentuated.
  • This reinforces their view that, despite the slowdown in activity, the Central Bank of Peru will only have a limited space to start lowering the benchmark interest rate this year, which BBVA expect will end in 2023 at 7.25%.
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