Peru | Policy rate unchanged in October, as expected

Summary

Following the 25bp cut in September, the Central Bank maintained its policy rate at 4,25 % in October. The virtually neutral stance of monetary policy is consistent with the benign inflation outlook and economic activity around its potential. We keep expecting the policy rate to remain at 4,25 % in the coming months.

Key points

• Key points:
• The decision to maintain in October the policy rate at 4,25 % implies that it remains “very close to the level estimated as neutral,” as the Central Bank (BCRP) described it in its September statement.
• This month's statement revealed no major changes to the BCRP's assessment of the main factors it considers in its monetary policy decision: the inflation outlook remains benign (with headline inflation trending up to the centre of the target range in the coming months), while economic activity stands around its potential level.
• This macroeconomic scenario is similar to the one we have at BBVA Research and suggests that the monetary policy stance should remain neutral.
• Our estimate for the policy rate neutral level, measured in nominal terms, is a range between 4,00 % and 4,50 %. The policy rate is currently within this range. Therefore, we continue to expect no additional rate cuts in the coming months.
• With inflation trending upwards going forward—it already began to do so in September—, a strong domestic demand and in particular private spending, and the temporary boost it will receive from the new pension funds withdrawal, the likelihood of further rate cuts is, in our opinion, limited.

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