Peru | BCRP Holds Rate at 4.25%: Room for Maneuver Narrows

Summary

The BCRP held its rate at 4.25% for the eighth straight month, in line with market expectations. Both headline (4.0%) and core (4.4%) inflation remain above the target range, and the communiqué now points to a longer timeline for convergence. We maintain our stable-rate forecast with an upward bias.

Key points

• Key points:
• The BCRP held its policy rate at 4.25% for the eighth consecutive month. Headline inflation rose from 3.8% to 4.0% and core from 3.7% to 4.4%, both above the upper limit of the target range.
• Twelve-month inflation expectations increased from 2.5% to 2.8%, remaining within the target range but on a sustained upward trend since February (2.1%).
• The BCRP dropped its projection of a return to the target range by year-end 2026, signalling greater persistence of supply shocks. It projects convergence to 2% in 2027.
• We maintain our stable-rate forecast at 4.25% with an upward bias; core inflation surpassing headline and rising expectations narrow the BCRP's room for maneuver.

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