- Peru: BCRP keeps its reference rate unchanged
The Board of the Central Bank of Peru (BCRP) decided to keep its reference rate unchanged at 4.75%, in line with our expectations at Scotiabank and with the market consensus (the Bloomberg median), where nine analysts expected no changes and four expected it to be reduced by 25bps.
Regarding the statement, the decision is based on the following points. The first is related to inflation. The BCRP expects that headline inflation—currently at 1.9%—will near the lower limit of the 1–3% target band in coming months and that core inflation—currently at 2.4%—will approach the midpoint of the target range (2.0%) in coming months. However, the BCRP highlights that in some countries it would take longer to converge to the target range. Perhaps they are anticipating a contagion of global inflation on domestic inflation.
The second element is economic activity. BCRP indicated in its statement that most indicators of economic activity expectations remained in the optimistic range, and showed a recovery, unlike the previous month, when they deteriorated. In addition, they emphasize that economic activity is registering greater growth in recent months.
Finally, regarding the international backdrop, the statement indicates that uncertainty persists regarding the possible application of trade policies from the government of Donald Trump.
The real interest rate increases slightly from 2.30% to 2.38%, remaining close to the 2.00% level considered neutral, so the BCRP would have room to make one to two additional cuts (-50bps). On the other hand, the expectation is that the Federal Reserve will not make adjustments to its reference rate during H1-25, reducing the flexibility for the BCRP to continue cutting its rate; the current spread between Peru’s and the US’s policy rate is 25bps. Our baseline scenario is that a final cut (25bps) will occur at one of the March or April meetings, depending on inflation trends, economic activity expectations, and the global trade policy environment.
—Ricardo Avila
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