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Goldman Sachs Base Case Is For Easing To Commence In Aug/Sep

PERU
  • Goldman Sachs expect the BCRP to leave the policy rate unchanged at 7.75%, given the macro-financial environment, updated inflation forecasts and balance of risks in the June Quarterly Inflation Report. However, GS do assign a low 20% probability to a scenario where the MPC delivers a 25bp cut at the meeting this week given the weak activity dynamics (especially private investment) and depressed business confidence.
  • GS assess that the MPC will wait for more conclusive evidence that inflation is well set on a path towards convergence to target before starting to ease the policy stance. It was only in June that headline inflation broke through the 8% ± 1.0% band within which it had remained for more than a year, and it continues to track visibly above target. In turn, core ex-food & energy reaccelerated in June and inflation expectations remain unmoored.
  • Goldman Sachs foresee further progress on both headline and core inflation in July on the back of favorable base effects, a restrictive policy stance, and the normalization of food supply disruptions. Accordingly, GS anticipate that the MPC may drop some vigilant statements from the post-meeting communique (e.g., “[the decision to hold] does not necessarily imply the end of the [tightening] cycle") and/or provide more neutral forward guidance, potentially signaling that, if the current and prospective inflation environment continues to evolve favorably, the easing cycle may start in Aug or Sept.
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