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Scotiabank Believe BCRP Will Hike But With Some Reluctance

PERU
  • Scotiabank expect the BCRP to hike 25bps to 7.25%. They believe the BCRP will hike with some reluctance, given that the policy rate is already quite high and the economy—particularly domestic demand—is running at a sub-2% y/y pace. At issue is that inflation is simply not coming down with enough conviction.
  • The fact that inflation remains at this elevated point must be a disappointment for the BCRP which has yet to see its restrictive monetary policy cycle significantly dampen price trends.
  • An increase in the nominal reference rate to 7.25% this week, together with a likely decline in inflation expectations in Friday release of the BCRP’s survey, will increase the real reference rate to what Scotiabank estimate will be between 2.5% and 2.7%. Given this, any further rate increases would take the real rate into a 3%+ territory which begins to be quite uncomfortable.
  • USDPEN has been bumping against the 4.00 level on multiple occasions of late—seeking to cleanly break through and past it, but unsuccessfully. Scotiabank don’t know to what extent there is a real intention on the part of the BCRP to control the exchange rate, but a stable sol is certainly helpful in seeking to stabilize inflation.

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  • Scotiabank expect the BCRP to hike 25bps to 7.25%. They believe the BCRP will hike with some reluctance, given that the policy rate is already quite high and the economy—particularly domestic demand—is running at a sub-2% y/y pace. At issue is that inflation is simply not coming down with enough conviction.
  • The fact that inflation remains at this elevated point must be a disappointment for the BCRP which has yet to see its restrictive monetary policy cycle significantly dampen price trends.
  • An increase in the nominal reference rate to 7.25% this week, together with a likely decline in inflation expectations in Friday release of the BCRP’s survey, will increase the real reference rate to what Scotiabank estimate will be between 2.5% and 2.7%. Given this, any further rate increases would take the real rate into a 3%+ territory which begins to be quite uncomfortable.
  • USDPEN has been bumping against the 4.00 level on multiple occasions of late—seeking to cleanly break through and past it, but unsuccessfully. Scotiabank don’t know to what extent there is a real intention on the part of the BCRP to control the exchange rate, but a stable sol is certainly helpful in seeking to stabilize inflation.