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Central Bank Decision In Focus, Velarde Ratified By New Government

PERU
  • The Peru Central Bank will meet this Thursday where analysts remain divided between the BCRP hiking between 25 or 50bps. Lingering monetary accommodation, mounting inflationary pressure and growing political uncertainty point to additional rate hikes in the pipeline.
    • The meeting comes after headline Lima CPI rose to 5.23% y/y on Friday, well ahead of the 4.83% estimate.
    • Additionally, La Republica reported that Peru's new government ratified Julio Velarde as central bank president for another five-year term over the weekend.
  • JPMorgan on Peru Central Bank Developments:
  • After weeks of uncertainty, the government finally ratified BCRP President Velarde for another five years at the helm of the monetary authority. Velarde's continuity puts at bay the risk of regime change when it comes to the central bank reaction function.
  • Velarde's confirmation also is accompanied by the confirmation of a technical BCRP Board, which is likely to prompt an improvement in the BCRP communication going forward, and shields the autonomous institution from political cycles.
  • With this major uncertainty source off the table, one should expect a narrowing, at least in part, of the current premia weighing on asset prices, particularly on the exchange rate that has proved the main factor behind the inflation acceleration experienced in the last four months.
  • To complete the Board, the Congress is to appoint the three remaining directors and also ratify Velarde.
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