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Goldman Sachs: Hurdle For Imminent Acceleration Of Cutting Pace Remains High

PERU
  • Goldman Sachs expect the MPC to lower the policy rate by 25bp to 6.25%, marking the sixth 25bp cut in a row. GS believe that the central bank will take comfort in the visible progress on the disinflation process and headline inflation now standing at its lowest level since May 2021.
  • Core ex-food & energy inflation, along with one-year ahead inflation expectations by economists surveyed, declined further within the target band. With the ongoing normalization of food supply and a negative output gap, inflation is well set to return to the target band shortly—potentially as early as February—supporting dialling back further the level of policy restraint through a moderate rate cut.
  • GS continue to view the hurdle for an imminent acceleration in the pace of cuts as high, on the back of the lowest policy rate differential (both in nominal and real terms) in the LA-IT5 space, and an almost 3% currency depreciation against the USD since the last MPC meeting, making the PEN one of the worst-performing LatAm currency over that span. Maintaining the pace of cuts is also consistent with the reiterated hawkish statement in previous MPC communiques.
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