BBVA: the BCRP will continue to cut its interest rate in November

In its most recent report, BBVA Research estimates that the Central Reserve Bank (BCRP) will continue to cut its reference interest rate in November, due to the decrease in inflationary pressures and the stagnation of productive activity. They also highlighted the “surprising” result of the Metropolitan Lima Consumer Price Index (CPI) for October, which reached -0.32%, when according to a Bloomberg survey an increase of 0.19% was anticipated.

It should be remembered that the next session of the BCRP Board of Directors in which the Monetary Program will be evaluated is scheduled for Thursday, November 9. The last time it kept its rate at 7.25%.

“Taking into account the downward surprise in inflation in October, that the weakness of the product is more pronounced than expected, and despite the risks posed by the conflict in the Middle East (on the international price of oil) and a El Niño phenomenon of strong intensity in the remainder of the year, the inflation projection for 2023, currently at 4.1%, has a downward bias,” say BBVA specialists.

Regarding the results of the month, the decrease in the prices of some foods stood out after the impact of the supply shocks that lemons and onions faced in recent months, for example, dissipated. On the contrary, In an environment of weakness of the local currency, the prices of imported or dollar-denominated goods increased, such as automobiles, air tickets, and rentals.

The macroeconomic analysis also highlights that the interannual inflation rate still remains above the target range of the BCRP of 2%, +/- one percentage point. “The decline, which began last February, was accentuated after going from 5.0% in September to 4.3% in October. The main components of inflation all continue to decline, which is partly explained by a high base year-on-year comparison (inflation in October 2022 was 0.35% m/m)”, they explain.