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Scotiabank on Peru Central Bank Decision

PERU
  • The BCRP could raise the reference rate by 50 bps to 4.50% at the April 7 policy rate meeting in line with a hawkish forward guidance stance and with the acceleration of inflation due to international conflict effects on commodity prices.
  • Scotiabank noted that looking ahead, the transportation strike is beginning to put pressure on food prices in urban areas (although there is as yet little sign of scarcity) and will have an impact beginning in April. Moreover, the transportation strike marks the first domestic source of inflation, which had heretofore seemed entirely driven by external factors.
  • Scotiabank expect the lagged effects of these shocks to continue to push inflation up during Q2-2022, reaching a peak in June at around 8% y/y. In this respect, rising inflation reinforces their expectation that the BCRP will raise its policy rate from 4.0% currently to 4.5%.
  • The question, though, is what comes next—whether the BCRP will increase its rate in May by 50 bps or by 25 bps. Scotia continue to expect the BCRP will end its tightening when the policy rate reaches 5.0%, as the risk of a slowing economy begins to weigh on their decisions.
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