- Peru: BCRP maintains policy rate and projects inflation returning to target range by year-end
- Mexico: Industrial activity—weak annual performance with mixed sectoral signals
PERU: BCRP MAINTAINS POLICY RATE AND PROJECTS INFLATION RETURNING TO TARGET RANGE BY YEAR-END
The Board of the Central Reserve Bank of Peru (BCRP) decided to keep its benchmark interest rate unchanged at 4.25% in April, marking the seventh consecutive month without adjustments. This decision was in line with our expectations and the market consensus (as reflected in Bloomberg’s median forecast).
The statement highlights that headline monthly inflation in March was 2.4%, raising the annual rate to 3.8%, while monthly core inflation stood at 2.1%, lifting the annual rate to 3.7%. This significant increase was driven by various supply shocks: the sharp rise in international oil prices, the disruption of natural gas supply during the first half of the month, and adverse weather conditions that pushed up the prices of certain food items.
At present, these inflationary pressures are considered transitory, under the assumption that the Middle East conflict will conclude before mid-year. Accordingly, the BCRP projects inflation will return to the target range (1%–3%) by the end of 2026 and stabilize around 2.0% in 2027, as the effects of supply shocks gradually dissipate.
Furthermore, the BCRP notes that economic activity remains close to its potential level, with leading indicators through March continuing to show a solid performance.
Finally, the statement underscores that global risks remain elevated due to the Middle East conflict. Nevertheless, global economic growth prospects for this year remain positive, and Peru’s terms of trade continue to be favourable.
Separately, the BCRP released its March survey of macroeconomic expectations, reflecting sentiment one month after the onset of the Middle East conflict. The survey results are as follows:
- 12-month inflation expectations: Increased from 2.1% to 2.5%, returning to levels last seen nearly two years ago (since June 2024).
- Inflation expectations for 2026 rose from a range of 2.0%–2.2% to 2.3%–2.8%.
- Economic activity expectations for 2026 declined from a range of 3.1%–3.2% to 2.9%–3.1%.
- Exchange rate expectations for end-2026 increased from a range of 3.38–3.40 soles per U.S. dollar to 3.38–3.45 soles per U.S. dollar.
- Most current situation and economic expectations indicators remained in the optimistic zone. Among these, short-term (3-month and 12-month) activity expectations improved compared to the previous month.
With the rise in 12-month inflation expectations and the policy rate held at 4.25%, the real interest rate has fallen below the neutral rate for the first time in nearly four years (since August 2022). Should this situation persist, it could open the possibility of future increases in the policy rate.
—Ricardo Avila
MEXICO: INDUSTRIAL ACTIVITY—WEAK ANNUAL PERFORMANCE WITH MIXED SECTORAL SIGNALS
In February, the Monthly Indicator of Industrial Activity (IMAI) fell, registering an annual variation of -1.3% in original figures, in negative territory for the second consecutive month. By component, and also in annual terms, mixed signals were observed. Mining posted slight growth of 1.1%, supported by mining-related services (19.5%) and offset by non-oil mining (-7.2%). The energy sector declined by -1.5% and manufacturing by -2.2%, with widespread contractions across subcomponents, except for the manufacturing of petroleum-related products (30.8%). Construction was the only positive component, continuing this trend for the fifth consecutive month, with a growth rate of 0.8%, driven by civil engineering (3.2%) and specialized construction activities (4.1%). In month-over-month seasonally adjusted terms, industrial activity grew by 0.4%, mining by 0.6%, public utilities declined by -1.4%, construction increased by 0.3%, and manufacturing rose by 0.7%.
—Rodolfo Mitchell, Miguel Saldaña, Martha Cordova
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