MNI BCRP Preview – Dec 2024: Pause In Easing Cycle Expected
Executive Summary
- With the BCRP signalling last month that a pause in the easing cycle is likely, the central bank is expected to stay on hold this week, at 5.0%.
- The recent up-tick in CPI inflation also gives a reason to pause, while Governor Velarde said that the increase in public spending is limiting the pace at which the central bank can cut interest rates.
- The central bank is expected to keep the door open to further rate cuts ahead, however, and some analysts still see scope for a cut this week, amid recent outperformance of the Peruvian sol.
Click to view the full preview: MNI BCRP Preview - Dec 2024.pdf
After trimming its reference rate by 25bp to 5.00% last month, the BCRP struck a more hawkish tone, saying that with that decision the real interest rate is approaching the level estimated as neutral. It also noted that the move did not necessarily imply successive interest rate cuts, signalling a potential pause ahead. Since then, inflation has rebounded in November, the unemployment rate has declined to a new multi-year low, and Q3 GDP growth has come in marginally above expectations.
Speaking earlier this month, BCRP Governor Julio Velarde said that despite the rise in November CPI, inflation remains very controlled, and he expects it to hover around 2% for the foreseeable future. However, Velarde also raised concerns about the fiscal position, saying that the increase in public spending to boost the economy is limiting the pace at which the central bank can cut interest rates. He added that the fiscal deficit, which is currently at 4.1% of GDP, is too high.