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Citi Forecast Unchanged BCRP, Goldman See Close Call Decision

PERU
  • Citi expect BCRP to keep the policy interest rate unchanged in their first decision of 2023.
    • Inflation surprised on the upside in December but remained below last June's peak. Citi recognize this inflation surprise puts pressure on the Central Bank to consider the possibility of another hike, but also realize these pressures are supply driven, influenced by the ongoing social unrest, and should be short-lived. They continue to expect inflation to decrease through 2023.
  • Goldman Sachs expect the MPC to hike 25bp, to 7.75%, but see the decision as a close call between a 25bp hike and a hold-and-monitor coupled with hawkish signals that the MPC would be open to resuming tightening if warranted. A 25bp hike may be followed by language and forward guidance suggesting the potential end of the tightening cycle.
    • In their assessment, a 25bp hike would be warranted given a backdrop where (1) inflation surprised to the upside in Dec and remains highly inertial; (2) core ex-food & energy and services inflation continues to track uncomfortably above target; (3) the FOMC signaled a tightening cycle with a higher peak rate; (4) Governor Velarde recently highlighted the robustness of private consumption and credit, and stated that inflation is expected to decelerate visibly starting in June (previously in April); and (5) the domestic political and policy environment remains highly uncertain after former President Castillo’s removal from office prompted congress to extend the current legislative session through Jan 31 (originally set to expire last Dec) to debate constitutional amendments to reform the political system.
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