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Goldman Sachs Think 25BP Easing Pace Will Continue

PERU
  • Goldman Sachs believe the BCRP will cut by 25bps to 7.00% this week and their call is grounded on the steadily improving inflation backdrop.
  • Against an unsettled global backdrop with the expectation of high rates for long in core economies, lower policy rate differentials—both in nominal and real terms—than most central banks in the LA-IT5 space, rising energy prices, and the growing probability of a strong El Niño weather phenomenon, GS believe that the MPC may favour a conservative and gradual approach to normalizing the policy stance, limiting the possibility of an acceleration in the pace of cuts.
  • All things considered, inflation is well established on a downward trajectory to meet the 3.8% forecast by the central bank, which should support moderate rate cuts over the next couple of meetings, barring renewed food supply disruptions and FX pressures.
  • First, inflation recorded a very large 32bp contraction, more than 50bp below the Bloomberg consensus, and the lowest reading since 2017. Second, some localized but sizable food supply disruptions that posed an upside risk to inflation in previous months are finally dissipating—especially in the case of limes and onions. Third, on an annual basis, both headline and core inflation continue to trend downwards, with the core reading now tracking only 30bp above the target band, and headline reaching its lowest level since July-2021. Fourth, medium-term inflation expectations remain within the inflation target band. Lastly, since the Oct MPC meeting, the PEN strengthened 2% against the USD.
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