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Peru Central Bank Preview – June 2021

PERU
  • The majority of forecasters believe the BCRP will leave the reference rate unchanged at 0.25%. Policy makers are likely to reiterate plans to maintain strong monetary stimulus while headwinds from the pandemic weigh on the economy.
  • However, headline annual CPI rose to 3.25%, the highest print since April 2017. Headline inflation is now running above the 3.0% upper bound of the target inflation range for the first time in almost four years. Persistent price pressures that affect inflation expectations will likely fast track the discussion for rate lift-off and/or an adjustment to the guidance, especially as several other EM central banks have become decidedly more hawkish in recent months.
  • Political uncertainty remains elevated. With a high likelihood Pedro Castillo will be announced, capital outflows have increased, the currency has depreciated, and higher volatility has ensued.
  • It also raises concerns on financial stability and inflation. This implies constraints on monetary policy and increases the risk of tightening policy.
  • Assuming Peru retains market friendly policies, it is largely expected economic activity will gather speed, thanks to supportive external conditions.
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