Political risk eases with the appointment of President Jeri; economy surprises on the positive side; the BCRP’s policy dilemma
In this report we offer an update on politics, the economy and markets. We first discuss how political risk has remained muted, despite the impeachment of former president Dina Boluarte, and Congress’s naming of José Jerí as interim president, while extending its own term through July 28th. Next, we discuss Peru’s surprisingly strong recent economic performance, and our decision to revise up our real GDP growth forecast, to 3.2% y/y in 2025, from 2.7%; to 3% from 2.6% for 2026; and to 3.2% from 2.9% for 2027. Finally, we argue that the BCRP’s Board is in a dilemma, between easing its policy stance to allow inflation to converge with the 2% official mid-point target, and retaining its tight policy stance to absorb potential market volatility associated with the general elections scheduled for April 12, 2026.
One month after Congress impeached Boluarte and appointed José Jerí as interim president (on October 10th), the first opinion polls indicate that political risk has eased. That this calm comes at a time when 39 political parties have begun campaigning for the general elections is surprising. Historically, most interim presidents appointed following an impeachment and who have had to oversee elections have fared well. This was the case with Valentín Paniagua (November 2000-July 2001), who oversaw the 2001 elections, and Francisco Sagasti (November 2020-July 2021) who oversaw the 2021 elections. Jeri’s tenure has also begun well. Unlike these previous elections, his arrival has been marked by a surprising calm in local market asset prices. The PEN has appreciated 5% ytd in the trade-weighted real exchange rate index, as estimated by the Banco Central de Reserva del Perú.
The September real GDP report from the Instituto de Estadística e Informatica (INEI, the national statistical institute) indicated that the economy grew at 3.9% oya, faster than our forecast of 3.6%. This pushed the Q3 2025 real GDP growth rate up to 3.4%, also higher than our own estimate of 3.2%, from 2.6% in Q2 2025. On the q/q, seasonally adjusted at annual rates measure, real GDP surged to 4.9% in Q3 2025 from 0.4% in the previous quarter.
Looking ahead, we continue to expect a mild deceleration in the current and next quarters. We forecast real GDP on the annual comparison to reach 3% in Q4 2025 and 2.7% in Q1 2026. On the q/q, seasonally adjusted at annual rates comparison, we forecast real GDP to reach 3.1% and 2.5%, respectively.
The BCRP’s Board left its policy rate unchanged at 4.25% at its November 13th policy meeting, as we and market consensus expected. Although we had argued that the BCRP’s Board would deliver one more rate cut at its December 11th meeting, we have now withdrawn this call, and instead anticipate a long pause until after the general elections. The CDs BCRP interest market report anticipates one more cut, in six months’ time.
As we have explained in previous reports, we see the BCRP’s Board in a policy dilemma between the surprisingly low inflation, below its 2% (+/- 1%) target range, which justifies lower policy rates, and political risk, which has yet to materialize, but in theory justifies keeping its policy rate unchanged.
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