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Itaú Forecasting Continued 25BP Easing Pace

PERU
  • According to Itaú, soft activity and well-behaved inflation support additional rate cuts from Peru’s central bank. They expect the BCRP to continue easing monetary policy (with 25-bp rate cuts) in 1H24, from the current 6.50% down to 5% by July 2024 and staying at that level through year-end.
  • Activity momentum remained soft in November (although recovering), with the quarterly annual rate at -0.6% in November. The recovery in activity has come mainly from the primary sector (mining and fishing), while non-primary activity remains soft, dragged by services and construction sectors.
  • Meanwhile, inflation continues to trend down, with headline inflation falling to 3.02% in January (from 3.24% in December), almost touching the upper bound of the central bank target range, while core inflation stood at a low 2.86% (from 2.90%). Inflation expectations have fallen somewhat faster than the policy rate recently, leading to a slight increase in the one-year real ex-ante policy rate to 3.67% (from 3.60% previously), still above the central bank's neutral rate estimate of 2.0%.
  • Itaú’s GDP growth estimate for 2023 stands at -0.4%, reflecting harsh weather conditions and the effects of social conflicts in 1Q23, expecting a rebound to 2.5% in 2024 , assuming an El Niño weather phenomenon in 1Q24 between weak and moderate.
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