Peru’s BCRP To Continue Q4 Cutting Cycle As Growth, Inflation, Slow Dramatically

• As expected, after the Banco Central de Reserva del Perù (BCRP) began its cutting cycle on September 14, there was an additional 25bps cut on October 5, bringing down the policy rate to 7.25%.
• This followed a dramatic fall in inflation in September, with headline CPI growth falling from 5.6% to 5.0%. Core inflation has likewise seen a sharper decline of 3.0% in September compared to 3.8% in August.
• However, the sharper slowdown in inflation can be partly attributed to the downturn in growth that Peru has been experiencing. Peru’s economic growth has remained constrained amid ongoing political- and weather-related headwinds which have resulted in the GDP forecast for 2023 being revised down from 1.8% previously to 0.6%
• Fitch Solutions anticipates that the BCRP will cut rates by another 25bps at the next meeting on November 9. Fitch believes that the rate will end the year at 6.75% and reach 4.50% by end-2024, as inflation has been falling sharply due to a slowdown in growth.
• Risks to the 2024 forecast remain high, as Fitch thinks end-2024 rates may be higher due to supply shocks such as El Niño and political protests.

(Source: Fitch Solutions)