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PERU: Goldman Sachs Expects BCRP To Remain On Hold This Week

PERU
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  • Goldman Sachs expects the BCRP to hold the policy rate at 5.0% this week. In their view, the temporary acceleration of core services inflation and the volatile global backdrop, impacted by elevated trade policy uncertainty and the possibility of a slower pace of easing by the Fed, will prompt the MPC to keep the policy rate unchanged again, while keeping the door open to delivering further cuts in the near-term.
  • GS believes that the MPC is likely now in the fine-tuning stage of the cutting cycle and searching for favourable entry points to dial back the level of restrictiveness. The MPC communique is still consistent with an overall dovish signal/guidance and the balance of risks for inflation remains neutral, but the range and impact of potential shocks broadened.
  • Although headline inflation printed at 0.11% m/m in December, well below expectations, GS notes that the reading’s composition was firmer, with core and services inflation accelerating. While overall core pressures remain broadly contained and GS expects this core acceleration to be short-lived, they believe that the MPC will prefer to wait until later in Q1 to ease further. They note that the temporary inertia of services inflation through Q3 2024 informed some of the BCRP’s consensus-beating rate holds last year.
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  • Goldman Sachs expects the BCRP to hold the policy rate at 5.0% this week. In their view, the temporary acceleration of core services inflation and the volatile global backdrop, impacted by elevated trade policy uncertainty and the possibility of a slower pace of easing by the Fed, will prompt the MPC to keep the policy rate unchanged again, while keeping the door open to delivering further cuts in the near-term.
  • GS believes that the MPC is likely now in the fine-tuning stage of the cutting cycle and searching for favourable entry points to dial back the level of restrictiveness. The MPC communique is still consistent with an overall dovish signal/guidance and the balance of risks for inflation remains neutral, but the range and impact of potential shocks broadened.
  • Although headline inflation printed at 0.11% m/m in December, well below expectations, GS notes that the reading’s composition was firmer, with core and services inflation accelerating. While overall core pressures remain broadly contained and GS expects this core acceleration to be short-lived, they believe that the MPC will prefer to wait until later in Q1 to ease further. They note that the temporary inertia of services inflation through Q3 2024 informed some of the BCRP’s consensus-beating rate holds last year.