Macro Watch: Peru rate; Chile CPI

Friday, February 9, 2018

Peru leaves rate unchanged

In line with most analyst expectations, Peru's central bank decided to leave the country's benchmark rate unchanged at 3.00%, opting to hold tight after last month's 25 basis-point cut.

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Language in the announcement, however, would suggest the monetary policy board is considering a further cut down the line.

"The board pays close attention to new data on inflation and inflation determinants to consider the convenience of making additional adjustments to the policy rate should it be necessary," read the statement.

"This is not the strongest dovish bias that the board has used, but it is code for: we're keeping our options open; if inflation falls significantly further, we will cut rates again," said research firm Capital Economics in a comment, adding the bank is likely to cut the rate a further 25bp in the coming months before holding the rate flat for the rest of the year.

While CE believes the central bank will maintain loose monetary policy to boost economic growth, the firm does not believe the recovery to be as strong as it expects, adding a potential impact from China.

"We expect growth in China - Peru's largest trading partner - to slow this year," said CE. "This will have a knock-on impact on the prices of Peru's industrial metals exports. All this will cause Peru's export revenues to soften, in turn preventing a strong recovery in domestic demand."

Chile CPI jumps in January

Chile's statistics agency (INE) reported a surprising 0.5% month-on-month uptick in January's consumer price index, brought on by a strong surge in fruit and vegetable prices, far offsetting reduced pressure on prices from favorable F/X movements.

Annual inflation, nevertheless, dropped slightly to 2.2% from 2.3%, though annual core inflation reached 1.6%, the lowest level recorded under the current basket of evaluation.

"The decline in the exchange rate is emerging as the main downside risk to prices for goods in the coming measurements, even within the context of rising prices for fruits and vegetables," said research firm BCI in a note to investors, adding that the central bank would like opt to maintain the current benchmark rate at 2.5% until least the fourth quarter, at which point it seems likely to begin monetary normalization.