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Central Bank Preview – August: 0000BST/1900ET

PERU
  • The most important thing to note is the BCRP August meeting appears live with a range of surveyed estimates for the decision due later today.
    • Of the seven Bloomberg estimates, four are calling for rates to remain unchanged, two are calling for a 25bps hike to 0.5% and one analyst sees the central bank hiking by 50bps to 0.75%.
  • CPI data rose sharply to 3.81% Y/y in July, well above the 3.3% estimate and 3.25% print for June. The result is the highest since 2017 and above the ceiling of the 2.0% +/- 1 percentage point target. Additionally, one-year inflation expectations rose to 3.0% from 2.6% A potential contamination of medium-term expectations has been indicated by end-2022 and end-2023 figures rising to 2.9% from 2.5% and 2.4% respectively.
  • Combined with mounting price pressures, an unsettled political backdrop has made the situation more difficult for the MPC. President Castillo's initial appointment of PM Guido Bellido sent local asset prices tumbling. In particular the Peruvian Sol has slipped over 3% to record lows. The more orthodox appointment of Pedro Francke as finance minister has done little to ease PEN pressure.
  • Central bank chief Julio Velarde told the president of congress that what's driving inflation is temporary, as with other countries, and it should normalise in coming months.
  • This comment boosts the potential for an unchanged decision, however, a hawkish manoeuvre at this juncture may be justified.
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