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PERU: Deutsche Bank Sees Next (Possibly Last) BCRP Cut In March

PERU
BulletPeruEM BulletEmerging Market News
  • In Deutsche Bank’s view, last week’s 25bp interest rate cut may have reflected an unduly high sensitivity by the BCRP to the downside risks to the growth outlook considering that expectations remain in optimistic terrain, the economy continues to operate at potential, and external headwinds could soon intensify.
  • DB notes that the communiqué re-introduced the message that the BCRP views the
    policy rate approaching a neutral level but didn’t restore the optionality to pause the cutting cycle, unlike the November statement. They read this as a signal that the BCRP may skip next month before resuming the normalisation cycle. DB thus sees another cut in March, which may be the last of 2025.
  • In FX, PEN has benefited from its low-beta status. Valuations look fair despite the rally against EUR and BCRP’s active intervention has also helped to prevent sharp moves. DB remains cautious and expects PEN to trade rangebound against USD. Regionally, valuation mismatches favour currencies like CLP against PEN. In rates, DB favours staying received. They have recommended Peru 2034 on the prospect of more easing than priced and still elevated term premium, and these two premises still hold, in their view.
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  • In Deutsche Bank’s view, last week’s 25bp interest rate cut may have reflected an unduly high sensitivity by the BCRP to the downside risks to the growth outlook considering that expectations remain in optimistic terrain, the economy continues to operate at potential, and external headwinds could soon intensify.
  • DB notes that the communiqué re-introduced the message that the BCRP views the
    policy rate approaching a neutral level but didn’t restore the optionality to pause the cutting cycle, unlike the November statement. They read this as a signal that the BCRP may skip next month before resuming the normalisation cycle. DB thus sees another cut in March, which may be the last of 2025.
  • In FX, PEN has benefited from its low-beta status. Valuations look fair despite the rally against EUR and BCRP’s active intervention has also helped to prevent sharp moves. DB remains cautious and expects PEN to trade rangebound against USD. Regionally, valuation mismatches favour currencies like CLP against PEN. In rates, DB favours staying received. They have recommended Peru 2034 on the prospect of more easing than priced and still elevated term premium, and these two premises still hold, in their view.