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Goldman Sachs on BCRP: MPC To Deliver Another 50bp Hike

PERU
  • With the reference rate at 1.50%, the policy stance will remain highly expansionary with a real policy rate at historical low levels. GS read the previous statement as hinting the intention to move the policy rate towards neutrality.
  • Inflation surprised significantly to the upside again. Despite declining fuel prices, consumer prices rose 0.40% mom in September. Inflation has now exceeded the market consensus in all the past five prints: May +8bp, June + 32bp, July +51bp, August +77bp, and again in September +24bp, reaching 5.23% y/y. At 2.57% y/y core ex-food and energy inflation is now notably above the 2.0% inflation target midpoint.
  • In their assessment, additional hikes are warranted given the positive growth momentum and the deterioration of the current and prospective inflation and exchange rate outlook.
  • The still very low policy rate level (highly negative real policy rate), the recent large inflation surprises, deteriorating short- and medium-term inflation and PEN expectations, heightened political and policy uncertainty (pressuring the capital account; capital flight), and broad risk management considerations justify a faster and more front-loaded monetary policy normalization path to at least a neutral policy stance.

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