Peru’s BCRP to Continue Cutting Cycle in March

• As previously expected, the Banco Central de Reserva del Peru (BCRP) cut its policy interest rate from 6.50% to 6.25% on February 8.
• Notably, headline inflation has continued its strong decline in January, coming in at 3.0% year-over-year (y-o-y) from 3.2% in December, and 3.6% in November. This puts inflation just at the upper end of the BCRP’s target range (1-3%). 
• While Fitch maintains that inflation will hover around the 3.0% mark through 2024, the agency has lowered its forecast for average inflation slightly from 3.2% to 3.1% and will see headline figures dipping below the upper tolerance band throughout the year. 
• Further to this, Fitch Solutions and the BCRP expect inflation to continue easing next month, and Fitch is currently forecasting a 25 basis point (bps) cut in March.
• Although inflation data has been very auspicious, which may encourage a larger cut, it is believed that the Central Bank will remain relatively cautious.
• Real interest rates remain high for now, and with 12-month inflation expectations falling lower than the 3.0% target, the BCRP is expected to bring the policy rate down to 4.50% by the end of the year.

 (Source: Fitch Solutions)