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JPMorgan Expect BCRP To Open Door For Easing In August

PERU
  • JPMorgan noted the expected inflation decline on the month passively tightened the monetary stance, as the ex-ante real policy rate climbed to 3.8%, as compared with 3.4% in the prior month. The additional tightening, despite the stability of the nominal policy rate, comes against the backdrop of poor growth and a negative output gap, consistent with declining core inflation.
    • Therefore, while both headline and core CPI remain above the target range, JPM believe the BCRP is to take comfort in the trends of realized and expected CPI to avoid additional passive tightening ahead.
  • The June CPI report confirmed that the persistency of supply side shocks abated quicker than JPMorgan had entertained. In addition, inflation expectations also dropped. Thus, in terms of the monetary policy path ahead, JPM reaffirm that the pre-conditions required to start reducing the increasingly tight real monetary stance are already fulfilled.
  • JPM expect the BCRP to hold the policy rate stable this week but open the door for easing starting in August. The policy rate is expected to converge to 6.0% by December 2023 and 4.0% by 2Q24.
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