Central Bank Preview – Analyst Views

**Morgan Stanley:

• Economists expect the BCRP to keep rates on hold, in line with consensus and market pricing.
• However, MS do expect policy-makers to start a hiking cycle later this year, as inflationary pressures continue to rise, bringing the policy rate to 0.75% by year-end.
• In the meantime, they keep a more neutral view on local assets, as cheaper valuations should be offset by ongoing headline noise.
• With the recent appointment of a more orthodox finance minister and with orthodoxy likely to persist at the central bank, local rates should see some support in the coming weeks.
• Still, political headline risk remains elevated amid a more opposition-led Congress and a cabinet largely made up of members from the ruling coalition. In addition, the government only has until August 30 to submit its 2022 budget proposal.

**Scotiabank:

• Expect the BCRP to maintain its reference rate at 0.25%.
• Julio Velarde the BCRP President of the Board seemed to suggest as much over the weekend when he said that the recent increase in inflation was temporary. If this is what the BCRP truly believes, then there would be no urgency to raise rates.
• One does wonder, though, if the BCRP is more nervous than they are admitting. Annual inflation in July came in at 3.8%. Moreover, inflation expectations jumped to 3.03%, which means that the real reference rate is -2.78%, a historically low figure.
• There is, however, the risk, which may weigh on the BCRP decision, that in the current environment of heightened sensibilities in Peru, raising the rate may end up sending the self-defeating message that the BCRP believes the domestic situation is worse than it actually is.