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Goldman Sachs: Open-Ended Guidance Consistent With A Conservative Stance

PERU
  • The minor innovations in the statement suggest that the overall balance of risks is ambiguous. Although there is no tangible sign or even a subtle hint that the end of the tightening cycle is over, language indicating the continuation of the cycle is also absent.
  • Given that the MPC refrained from explicitly addressing the source of recent previous upward inflation surprises, GS interpret this addition as a signal that the MPC regards it as a temporary shock not necessarily affecting its calibration of monetary policy (and potentially vanishing in Feb-Mar).
  • Given Goldman’s expectation of higher growth after China’s re-opening, the stronger than expected external demand now constitutes an upside risk to inflation given that copper prices are an important determinant of Peru’s terms of trade. However, GS highlight that this activity boost may be moderated by weaker private aggregate demand (investment in particular) following widespread social protests in the country.
  • GS believe that the open-ended forward guidance is consistent with a prudent/conservative stance, especially against a very uncertain and unsettled domestic political backdrop after former President Castillo’s removal from office prompted congress to extend the current legislative session (originally set to expire last Dec) to debate constitutional amendments to reform the political system.

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