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PEN Weakness/Higher Growth Could Prompt Another Pause In BCRP’s Easing Cycle

PERU
  • Despite better-than-expected activity data, USDPEN rose by 0.9% in yesterday’s session, reaching its highest level since early March. BBVA note that the pair had been settling in a 3.66-3.74 range, with 3.70 as a pivot, following earlier BCRP intervention, and the lack of central bank action yesterday may have contributed to the move higher late in the session. They add that the strength of activity in February might prompt BCRP to consider another pause in its easing cycle at the next MPC meeting.
  • Itaú note that the 2.9% y/y rise in economic activity in February was partly supported by a favourable base effect. Growth was driven by a strong expansion in mining and construction, while services remained in a recovery mode. On a m/m (sa) basis, the GDP proxy rose by 1.2%. In their view, however, while activity was above expectations, momentum remains soft. As a result, they don’t expect BCRP’s concerns on activity to change significantly.
  • However, Itaú believe that cuts in the reserve requirement are more likely than policy rate cuts given the narrowing of the rate differential with the Fed which could pressure the currency. Their year-end policy rate estimate is at 5.75%, implying just one more 25bp rate cut during the rest of the year.
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