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PERU: Itaú Expects BCRP To Cut Another 100bp To 4.25%

PERU
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  • Even though the BCRP has cut the policy rate and adjusted the reserve requirement down this year, weaker-than-expected activity data, well-behaved inflation, and the beginning of a Fed easing cycle, lead Itaú to expect the central bank to ease again before year-end, with a further 25bp rate cut to 5.00%. Itaú expects further cuts next year as well, with the policy rate falling to 4.25%.
  • Itaú’s 2024 GDP growth forecast of 3.1% has a downside bias after recent weak data. However, given positive terms of trade and considering that the services sector is gaining momentum, they prefer to wait to assess Q3 activity indicators before adjusting their call.
  • Itaú have increased their nominal fiscal deficit forecast to 2.8% of GDP, from 2.5% of GDP, in line with the Ministry of Finance. They note that on a 12-month rolling basis, the nominal fiscal deficit stood at 4.0% of GDP in July, substantially above the government’s target. The main drag has been soft tax revenues, but high copper prices and activity recovery in H2 should help to close the fiscal gap during the rest of the year. While rating agencies seem comfortable with the fiscal accounts, another fiscal miss could trigger a reassessment of their views.
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  • Even though the BCRP has cut the policy rate and adjusted the reserve requirement down this year, weaker-than-expected activity data, well-behaved inflation, and the beginning of a Fed easing cycle, lead Itaú to expect the central bank to ease again before year-end, with a further 25bp rate cut to 5.00%. Itaú expects further cuts next year as well, with the policy rate falling to 4.25%.
  • Itaú’s 2024 GDP growth forecast of 3.1% has a downside bias after recent weak data. However, given positive terms of trade and considering that the services sector is gaining momentum, they prefer to wait to assess Q3 activity indicators before adjusting their call.
  • Itaú have increased their nominal fiscal deficit forecast to 2.8% of GDP, from 2.5% of GDP, in line with the Ministry of Finance. They note that on a 12-month rolling basis, the nominal fiscal deficit stood at 4.0% of GDP in July, substantially above the government’s target. The main drag has been soft tax revenues, but high copper prices and activity recovery in H2 should help to close the fiscal gap during the rest of the year. While rating agencies seem comfortable with the fiscal accounts, another fiscal miss could trigger a reassessment of their views.