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Itaú Expect BCRP To Focus On Lowering Reserve Requirements

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  • Well behaved inflation amid a fragile activity recovery suggests there is still room for the BCRP to continue easing. However, increased uncertainty regarding the start of the Fed's easing cycle considering the narrowing of the BCRP-Fed rate differential limits how low the policy rate can go in the short term.
  • Itaú’s base case is for the BCRP to keep the policy rate unchanged during the rest of year, relying on lowering the reserve requirement rate to ease financial conditions, instead. Still, they cannot rule out an additional policy rate reduction this year, risking pressure on the currency, if inflation surprises further to the downside.
  • The recovery of economic activity in 1Q24 has been favoured by calendar and base effects. Itaú expect the economy to gain traction as it shakes off the effects of weather shocks and benefits from even better terms-of-trade. They now expect the economy to grow by 2.7% in 2024, slightly up from their previous forecast of 2.5%, but still below potential, driven by their call of higher growth in China.
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  • Well behaved inflation amid a fragile activity recovery suggests there is still room for the BCRP to continue easing. However, increased uncertainty regarding the start of the Fed's easing cycle considering the narrowing of the BCRP-Fed rate differential limits how low the policy rate can go in the short term.
  • Itaú’s base case is for the BCRP to keep the policy rate unchanged during the rest of year, relying on lowering the reserve requirement rate to ease financial conditions, instead. Still, they cannot rule out an additional policy rate reduction this year, risking pressure on the currency, if inflation surprises further to the downside.
  • The recovery of economic activity in 1Q24 has been favoured by calendar and base effects. Itaú expect the economy to gain traction as it shakes off the effects of weather shocks and benefits from even better terms-of-trade. They now expect the economy to grow by 2.7% in 2024, slightly up from their previous forecast of 2.5%, but still below potential, driven by their call of higher growth in China.