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France 30-year OATEi: Books open


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Selling going through in Estoxx


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  • Despite the mild upside against their CPI forecast, the over-year-ago print started to decelerate, to 5.66% from 5.82% oya in October. Headline inflation is thus currently 266bp above the BCRP inflation target ceiling.
  • JPM expect the BCRP to hike the policy rate again by 50bp, to 2.5%. In terms of monetary policy the main question is whether the BCRP is to maintain the 50bp tightening pace implemented since September, or to 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 played a part. In particular, the resumption of political uncertainty via impeachment risk, as well as renewed doubts on the government’s economic and institutional agenda which impacts 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 for the policy rate to close the year at 2.5%. If they are on the mark, the policy rate would close the year 25bp above the pre-Covid level.
  • For 2022, they 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.