BCRP to extend its policy pause on July 11th

PERU - In Brief 08 Jul 2024 by Alfredo Thorne

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We have decided to call for an extended policy pause at Banco Central de Reserva del Perú's (BCRP, the central bank) Board meeting on July 11th. Although in our June report we had called for a 25bp cut, the Instituto de Estadística e Informática's (INEI, the statistical institute) June inflation report indicated that both headline and core inflation surprised on the negative side. We had argued in our May and June reports that further rate cuts would be data dependent and link to core disinflation. In June, headline inflation accelerated to 2.3% relative to the same month of last year, from 2% in May, and core to 3.12% from 3.10%, respectively.  Although 12-month forward inflation expectations fell to 2.53% from 2.56%, the Board in its May statement had inserted in its guidance paragraph core inflation as a policy driver. In addition, while Governor Velarde has dismissed the US Fed decisions as a policy driver, more recently the currency had been sliding and forced BCRP to intervene in the FX market. It is apparent that the Board does not want to add fuel to the currency slide, unless there are justified reasons to keep cutting rates.  More in our July report, due next Tuesday.