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JPMorgan on CPI and BCRP Monetary Policy Decision

PERU
  • Lima headline inflation accelerated in March, printing +1.48% M/m and driving annual CPI to 6.82% Y/y, 382bp above the BCRP inflation target ceiling.
  • Following the data, JPM revised end-2022 headline inflation higher by 20bp, to 5.0%. Headline inflation is expected to average 7.6% in 2Q22, while for the second half of the year they expect it to decelerate to 5.5% in 4Q22.
  • In terms of monetary policy, JPM expect the BCRP to hike the policy rate again by 50bp this week, setting the policy rate at 4.5%.
  • Different from regional peers that have recently turned on the dovish side putting to the fore expectations for weaker activity ahead despite de-anchored inflation expectations, JPM believe the BCRP is mindful of the potential costs associated with policy errors at this juncture, of particular relevance for financially dollarized economies.
  • Thus, despite the regional central bank’s turn last week, JPM see forecast risk skewed to a higher policy rate rather than a lower one.
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