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Goldman Sachs on BCRP: 50bp Hike Despite Somewhat Dovish Guidance

PERU
  • GS expect the MPC to deliver another 50bp hike, to a still accommodative 2.00% and with the real ex-ante policy rate still at historical low levels.]
  • Robust growth, higher than expected inflation, and further increase in inflation expectations support the call for another 50bp hike despite last meeting's somewhat dovish guidance.
  • Inflation surprised significantly to the upside. Consumer prices rose 0.58% mom in October, vs consensus expectations for a +0.24% mom increase. Inflation has exceeded the market consensus in all months since May. Additionally, short- and medium-term inflation expectations are also tracking visibly above the 2.0% target midpoint.
  • In their assessment, additional hikes are warranted given the positive growth momentum and the deterioration of current and prospective inflation. The still very low policy rate level (highly negative real policy rate), the recent large inflation surprises, deteriorating short- and medium-term inflation expectations, heightened political and policy uncertainty (pressuring the capital account; capital flight), and broad risk management considerations justify a frontloaded path towards monetary policy normalization from the current very high level of accommodation.

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