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PERU: BBVA Expects BCRP To Cut To 4.5% Neutral Level By Year-End

PERU
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  • BBVA expects Peruvian GDP to rise by 2.9% this year and 2.7% in 2025. Private spending will gain traction in the coming quarters, supported by more favourable financial conditions, the impact of private pension fund withdrawals and the beginning of construction of some infrastructure projects, while public spending will moderate. Anchored inflation expectations and the absence of demand pressures on prices suggest inflation will remain within the target range in the coming quarters, closing this year around 2.5% and next year at 2.3%.
  • BBVA believes that with inflation under control and the gradual reduction of slack in the economy, the central bank will keep cutting its policy rate for the remainder of this year, reaching 4.50% by year-end. This would bring the policy rate to what they regard as the neutral level, where they expect it to remain in 2025.
  • Considering an interest rate spread around zero in Q4 2024, BBVA foresees that USDPEN will end the year between 3.70 and 3.80. For 2025, they anticipate some strengthening of the PEN, to 3.65-3.75 by year-end, supported by a more favourable interest rate spread and a still high trade surplus, despite uncertainty due to the 2026 domestic electoral process becoming more visible, especially towards the end of that year.
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  • BBVA expects Peruvian GDP to rise by 2.9% this year and 2.7% in 2025. Private spending will gain traction in the coming quarters, supported by more favourable financial conditions, the impact of private pension fund withdrawals and the beginning of construction of some infrastructure projects, while public spending will moderate. Anchored inflation expectations and the absence of demand pressures on prices suggest inflation will remain within the target range in the coming quarters, closing this year around 2.5% and next year at 2.3%.
  • BBVA believes that with inflation under control and the gradual reduction of slack in the economy, the central bank will keep cutting its policy rate for the remainder of this year, reaching 4.50% by year-end. This would bring the policy rate to what they regard as the neutral level, where they expect it to remain in 2025.
  • Considering an interest rate spread around zero in Q4 2024, BBVA foresees that USDPEN will end the year between 3.70 and 3.80. For 2025, they anticipate some strengthening of the PEN, to 3.65-3.75 by year-end, supported by a more favourable interest rate spread and a still high trade surplus, despite uncertainty due to the 2026 domestic electoral process becoming more visible, especially towards the end of that year.