• Peru: BCRP resumes cutting cycle; New car sales declined in March, with a negative impact on Q1-24 sales


The board of the Central Bank of Peru (BCRP) surprised and chose to cut its policy rate by 25bps, to 6.00%, when the market consensus and we expected another pause. Although the BCRP’s statement indicated that both local and global inflation are showing some resistance in their downtrend, it considers that these effects are transitory and that the decrease in inflation will continue throughout the year.

The statement has a more dovish tone by specifying that the BCRP expects inflation to converge not only into the 1–3% target range, but also specifies that it expects a gradual return to the center of the target range (2%) in coming months, highlighting that 12-month inflation expectations decreased slightly from 2.65% to 2.56%. The weakness of the impacts of the El Niño event and its early conclusion would also partly explain this position. The risks associated with climatic factors were no longer mentioned in the statement.

This assessment of local conditions would have counteracted the international factors that seemed to have taken a greater role in the March decision. Inflation is taking a long time to subside in the world and the US economy has been showing signs of strength in the labor market, putting upward pressure on interest rates in USD (which for a UST10 year term are close to 4.60%, the highest level in six months). This could delay the start of the Fed's rate cut cycle. The BCRP expects in its base scenario that the Fed will begin the rate cut cycle during the second half of the year.

The first readings for April inflation are favorable and suggest that inflation would be below the historical average (0.22%), making it likely that inflation will return to the target range (between 1% and 3%) relatively soon. These elements would have been implicitly validated by the BCRP, being sufficient to continue the cycle of rate cuts.

By cutting the reference interest rate to 6.00%, the real interest rate was reduced from 3.6% to 3.4%, still far from the 2.0% considered a neutral level, accumulating 20 months of contractionary territory (chart 1). The forward guidance remained unchanged, stating that “if necessary, it will consider additional modifications to monetary policy.” So far in 2024, monetary policy decisions are aligned with our vision, which is why we maintain our forecast of a rate of 4.25% by the year-end.

Chart 1: Peru: Nominal, Real and Neutral BCRP Interest Rate

Our base case sees cuts of 25 basis points per meeting until Q4-24, when we expect a further pause once the real rate approaches the neutral 2% level. The main risk factor for now is the possibility of a delay in the Fed's rate cut cycle. The BCRP survey showed that the market maintained its key rate expectation for the year-end, at 4.50%, for the third time consecutive month. Monetary conditions showed a partial recovery in their latest reading. Liquidity accelerated its expansion in February (+2.3% y/y, for the fourth consecutive month), although loans does not take off (+0.3% y/y), see chart 2. Financial savings continue to accelerate (+8.2% y/y), for the ninth consecutive month; although its composition would change after Congress approved the seventh withdrawal of private pension funds. 

Chart 2: Peru: M2 vs. Loan Growth

—Mario Guerrero



New car sales in March experienced a drop of 28% YoY. While this decline was within our expectations based on the high sales recorded in March 2023, which was also the highest monthly figure since January 2014, the magnitude of the drop was higher than we anticipated, with March 2024 sales being the lowest since July 2021.

The fall in sales can be attributed to the Easter holidays, which led to an increase in non-working days from four in March 2023 to eight in March 2024. We estimate that sales would have fallen by less than 20% in the absence of this effect. Additionally, greater seasonal spending on education due to the beginning of the school and college year, which usually takes place in March and typically competes with spending on cars, was higher than expected due to an increase in tuition. Moreover, Easter holiday travel expenses during March 2024, and which occurred in April 2023, limited the budget for new car purchases, especially in the light-vehicle segment.

Chart 3: Peru: Vehicle Sales; Chart 4: Peru: Vehicle Sales

New vehicle sales in Q1-23 fell by 11% YoY, primarily due to a 13% decline in light vehicles sales. This was not offset by an 8.4% YoY increase in sales of heavy-duty vehicles. However, we remain confident about the sales outlook in the coming months, particularly during 2H24, driven by a base effect, as 2H23 sales were the lowest in 2023. Moreover, the anticipated reduction of interest rates for vehicle purchases, following the gradual reduction of the central bank’s reference rate, could boost vehicle sales.

Despite lower-than-expected results for Q1-24, we are still confident in our growth outlook. Our 2024 forecast is now nearly 1%, with light-vehicle sales slightly higher than the previous year. Heavy-vehicle sales are expected to outpace the sector’s growth. Despite March’s challenges, we remain optimistic about the industry’s future and expect a rebound in the coming months.

—Carlos Asmat