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JPMorgan Expect BCRP To Maintain The 50bp Tightening Pace

PERU
  • Political risks are again on the rise, with Congress likely to weigh in on the merits of a presidential impeachment vote in the coming days.
  • In terms of monetary policy the main question is whether the BCRP will maintain the 50bp tightening pace implemented since September, or decelerate to 25bp.
  • The local currency has been under pressure again in the last weeks, with USD/PEN returning to levels as of late July. While external factors have had a role in explaining the 2% PEN slippage observed since early November, domestic factors also have a say, in particular the resumption of political uncertainty via impeachment risk, as well as renewed doubts over the government’s economic and institutional agenda—ultimately impacting expected inflation.
  • With the nominal interest rate below its neutral level, and real rates still deep in negative territory, JPM believe the optimal monetary strategy is to maintain the 50bp tightening pace, so the policy rate closes the year at 2.5%.
  • If correct, the policy rate would close the year 25bp above the pre-COVID level. For 2022, JPM expect the policy rate to reach 4.25% by 3Q22, driving the ex-post and ex-ante real rates close to the 2011-19 average level.

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