Political scene remains uncertain; El Niño introduces downside risk; we retain our call for an August rate cut
In this report, we focus on three main topics. First, we discuss the expected busy political calendar for July. On July 19th, left-wing organizations and parties are planning a march into Lima, similar that of January 28th. On July 26th, Congress will elect its new president and board. And on July 28th, the anniversary of Peruvian independence, President Dina Boluarte will deliver her annual speech to Congress. Second, we argue that the El Niño weather phenomenon, expected to hit Peru’s coast in late 2023, will introduce a downside risk to our real GDP growth forecast. Finally, we consider whether the negative inflation result in May justifies our bringing forward our forecast for the timing of the first rate cut to the Central Bank’s July 13th policy meeting, from our current published forecast of August 10th.
Peru in July is invariably loaded with political events, and this year promises to be no different. July 28th is the anniversary of Peruvian independence, with Boluarte’s speech to Congress expected to review the principal accomplishments of her presidency as she sees them, and to lay out her plans for the coming year. Being a fragile government, with a low popularity rate and limited congressional support, the Boluarte administration is exposed to political pressure. The two main challenges to the president are the ongoing investigations by the Ministerio Público, Fiscalía de la Nación (MPFN, the Attorney-General’s Office) into the government’s handling of the recent civil unrest, and the slowing economy that is eroding her popularity.
On July 26th Congress is due to elect its new president and board members. Perú Libre, the radical left-wing political party that supported the bid of former president Pedro Castillo in his 2021 presidential election campaign, is expected to take the presidency of Congress. Its strategy is to push through the election of Waldemar Cerrón, brother of Vladimir Cerrón, another prominent member of Perú Libre, who was heavily involved in the Castillo presidential campaign. Moreover, on July 19th, left-wing unions and other associations, including some political parties and Castillo supporter groups, are organizing a march to Lima to demand Boluarte’s resignation, as well as a referendum on a Constitutional Assembly to draft a new Constitution, and the reinstatement of Castillo as president. The left expects a repeat of the January 28th Lima march, when thousands of farmers, unions members and members of other protesting organizations marched on Lima.
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