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JPMorgan: A Pause Appears As A Likely Policy Option

PERU
  • In terms of monetary policy ahead, the statement does not suggest the Board entertains ending the tightening cycle. Yet, the preconditions for the Board to pause seem to be in place. Indeed, fresh food appear as the main factor behind the fact that headline inflation has not embarked in a firm downward trend. More important, the recent strong monthly prints have not altered the downward trend for inflation expectations ahead, a signal that food prices are not affecting expectations or second-round effects ahead.
  • In all, JPMorgan believe a pause appears as a likely policy option, under the assumption of stable risk premium ahead. JPM thus expect the policy rate stable ahead, at least until annual headline inflation shows a clear downward trend (which the BCRP expects to start by March) and 12-m expectations appear at least approaching to the ceiling of the target range.
  • Once these conditions are fulfilled, the BCRP would be in condition to start trimming the policy rate, what is now expected for June. The policy rate is expected to converge to 5.0% by December 2023, and 4.0% by 2Q24.
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