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Deutsche Bank Sees BCRP Cutting In Tandem With Fed

PERU
  • Deutsche Bank says that a more constructive assessment of core inflation dynamics emboldened the BCRP to resume rate cuts last week. DB sees core inflation falling below the target band’s ceiling in August, though it may remain in the high-2s through early 2025, likely closing the year at 2.9%. As a result, DB think there’s space for additional policy easing.
  • Deutsche Bank now sees the BCRP delivering additional cuts in tandem with the Fed. Specifically, they expect the BCRP to deliver 25bp cuts in September, November and December, leaving the policy rate at 4.75%. A final cut could be delivered in September 2025 as per DB’s outlook for the Fed.
  • On the FX, DB says that PEN is among the most undervalued currencies on a FEER basis. This valuation and stable copper prices at supportive levels continue to support USDPEN near 3.75 throughout the moderate downturn they foresee. Political noise has also mostly dissipated, for now. They see USDPEN near 3.75, possibly moving closer to 3.70 levels. In rates, DB sees most value in the long end of Peru’s cash curve, as a steep curve supports receiving in longer tenors.
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