Cabinet crisis persists; Chancay port could create a Pacific hub; BCRP to cut 125bp in 2024
In this report we cover politics, the economy and markets. First, we discuss the crisis gripping President Dina Boluarte’s Cabinet. In our last report, we argued that Boluarte may opt for a reshuffle – but as of this writing, that had not happened. As a consequence of her failure to act, the Cabinet crisis has intensified, and we now expect a Cabinet reshuffle in April, when Congress returns from recess.
On the economy, we first discuss the December real GDP report due on February 15th, followed by the economic impact of the eight new ports scheduled to start operations in 2024. We estimate real GDP to have dropped 0.5% oya, but we argue that this will be the final monthly contraction before economic recovery begins in early 2024. We examine the development of the new ports, including the Chancay port built by a joint venture between China’s COSCO Shipping and Peru’s Volcan Mining Company. We suggest that this development will position Peru as a South Pacific port hub, attracting cargo trade from the majority of neighboring countries. This justifies our real GDP forecast projection accelerating to 2.8% in 2025, and 3% in 2026, from 1.8% in 2024.
Finally, we discuss monetary policy. The BCRP Board cut 25 basis points at its February meeting, lowering its policy rate to 6.25%. This move surprised us, and prompted us to revise our forecast: we now expect the Board to cut a further 25bp at its March meeting, and to make similar cuts at subsequent monthly meetings, on the back of the U.S. Federal Reserve’s Open Market Committee bringing its policy rate to 5% by yearend. The risk is that the tightening of the spread between the BCRP policy rate and the Fed funds rates may result in greater FX volatility. But we argue that the BCRP has the instruments to moderate this volatility.
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