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Peru Preview - 9th March: BCRP to leave rate unchanged at 4.25%

By:  Pedro Tuesta Posted:  14 Mar 14:12

Bottom line - February inflation rebounded but the BCRP seems comfortable on the fact that inflation expectations are grounded below the upper side of the target band and feels that it could turn its attention to faltering recovery. Barring unexpected PEN weakness or supply shocks the BCRP will keep the reference rate unchanged for the rest of the year.

 

The BCRP is likely to leave monetary policy unchanged until the end of the year, unless we see a persistent increase in inflation and inflation expectations in the coming months.

 

Certainly inflation closed 2016 above the target range, and has shown some resilience in the first quarter but inflation expectations had held close to the centre of the target for the 24 months range

 

Moreover there is a clear pessimism regarding the recovery and the output gap may remain positive for longer than expected. Actually the BCRP has already reduce the reserve requirement in both PEN and USD to help the economy to regain credit suggesting that is more worried on growth than on inflation.

 

We expect the BCRP statement to stress that inflation is temporarily above the target, but that is not affecting expectations and therefore the BCRP believe there is room to keep the rate at current levels, which has been positive in real terms for a long time.

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