The
Central Reserve Bank of Peru (BCR) could reduce its reference interest rate by around 200 basis points in 2023 if the measured inflation continues to decline and expected inflation in 2024 manages to be corrected to 2%.
"This might occur in the absence of new supply shocks, with no demand pressures and an anchored exchange rate," Credicorp Capital said in its Macro Research – Peru report.
Indeed, the BCR raised its reference interest rate to a historical high of 6.75% last Thursday, but reduced the rate of increase from 50 bps to 25 bps for the first time since the August 2021 meeting, when the upward trend in said rate began.
"The BCR highlighted that the significant increase in international energy and food prices since the second half of 2021, which were accentuated by international conflicts, has brought a strong increase in global inflation at levels not seen in many years and towards levels significantly higher than inflation targets of central banks both in advanced economies and in the region," Credicorp Capital indicated.
It stated that the BCR continues to forecast a downward trend in year-on-year inflation with a return to the target range in the second half of 2023, due to a moderation of the impact of international food and fuel prices, and to a reduction in inflation expectations.
Tighter liquidity
Credicorp Capital underscored that one-year-ahead expected inflation decreased from 5.16% to 5.10% in August 2022, above the upper limit of the inflation target range.
"In addition, a higher reference interest rate is being accompanied by tighter liquidity conditions in the market," it underlined.
(END) JJN/RMB/MVB
Published: 9/13/2022