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Goldman Sachs on BCRP: Expecting Another 50bp Hike To 3.5%

PERU
  • GS read the changes in the previous statement as a signal of additional near-term rate hikes given the current and expected inflation dynamics.
  • The policy-relevant Lima CPI increased just 0.04% mom in January, notably below consensus expectations for a +0.33% mom variation. With the January print, annual inflation (Lima CPI) declined to 5.68% from 6.43% in December. Core excluding food and energy declined 0.16% mom and as a result the annual core measure declined to 3.08% from 3.24% in the prior month. Nevertheless, in their assessment inflation will rise further and remain elevated in the coming months, with the headline print likely to peak close to 7% during 2Q2022.
  • GS note that INEI announced that the January print contemplates a base year updated consistent with a change in households’ consumption habits. Comparing historical data at the broad group level (8 consumption groups) suggest that the weight changes do not meaningfully impact the behavior of realized inflation.
  • In their assessment, despite the January inflation surprise to the downside and the slower growth backdrop, additional rate hikes are warranted given the challenging inflation outlook and heightened policy and political uncertainty and risk. All in all, given that the policy rate is still at a low 3.00% and the ex-ante real policy rate has remained negative, an additional 50bp rate hike to 3.50% would still maintain an accommodative/expansionary monetary stance in coming months.
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