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Deutsche Bank Forecast June BCRP Cut, Domestic Developments Support PEN Longs

PERU
  • Deutsche Bank see the BCRP finally changing the communication to start cutting in June. They expect them to bring rates from 7.75% to 6.75% by year-end (vs. ~50bp priced) as Q2 data confirm lower than expected growth.
  • In their opinion, the BCRP has no incentive to take a stronger view now, given uncertainty about the Fed’s terminal rate and after so many shocks hit the economy. Additionally, by May-June markets should see a significant drop in inflation and have the Fed (about to) pause.
  • Private demand is weak on lower real income, protests and floods hit both income and wealth, and investment will likely stay subdued (as indicated by surveys) on lingering uncertainty – domestically and abroad.
  • Tentative political stability has been enough of a break for the president to appoint technocrats and improve on the delivery of services, which may boost the chances that she extends her tenure through 2026. Encouragingly, the mining sector seems to be back at full capacity, while better-than-expected demand from China, US, and EU are boosting exports which Deutsche Bank believe support PEN longs.
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