Goldman Sachs on Peru Central Bank Decision Due Tomorrow

Expect the MPC to accelerate the pace of rate normalization to 50bp (from the 25bp liftoff move in Aug) to a still highly accommodative 1.00%.

• At this juncture, GS assess a 20% probability of another mild 25bp hike, and 15% probability of a bolder higher than 50bp move. They expect the MPC to harden the forward guidance to acknowledge the deterioration of the current and prospective inflation and exchange rate outlook.
• In their assessment, the very low policy rate level, the recent large inflation surprises, deteriorating short- and medium-term inflation and PEN expectations (ex-ante real policy rate has continued to decline), heightened political and policy uncertainty (pressuring the capital account; capital flight), and broad risk management considerations fully justify a faster and more frontloaded monetary policy normalization path.