Scotiabank and Barclays See Potential For Below Consensus BCRP Action

Scotiabank Say Lower Inflation Brings End Of Hiking Cycle Into Focus

• Scotiabank assign a significant probability that the reference rate will remain at 6.50% at the next BCRP meeting on September 08. A 25bps hike is less likely, but possible if the BCRP seeks to ensure convergence towards the target range.
• Annual inflation slowed more visibly for the second consecutive month, falling from 8.7% y/y to 8.4% y/y, though it remained above the 3% upper limit of the target for 15th consecutive month.
• August’s inflation reflected increases in food prices with a large weight in the consumer basket, but also showed the reduction in fuel and transportation prices.
• Core inflation also slowed, going from 5.43% in July to 5.38% in August, this being the first sign of moderation in the more structural component of inflation.
• Going forward, Scotiabank expect the slowdown in inflation to continue, albeit at a gradual pace. Their inflation forecasts remain at 7.4% for 2022 and 4.0% for 2023.
• In the last twelve months, the BCRP raised its reference rate by 625 basis points to 6.50% and raised reserve requirements three times. The 12-month inflation expectations began to break in July, going from a record of 5.35% to 5.16% according to the July BCRP survey. Scotiabank see this trend as likely to have continued into August. The real interest rate (1.36%) is close to the neutral rate (1.50%), so Scotia believe that we are close to the end of the BCRP interest rate hike cycle.

Barclays Call For Below Consensus 25bp Hike

• Barclays expect the BCRP to hike the reference rate by 25bp to 6.75%, below the consensus +50bp, as the economy has been slowing and, particularly, given the political noise around President Castillo’s third impeachment attempt, inflation (albeit high) not having kept an upward trend, and USD-PEN volatility having declined significantly in the past few weeks.