Take physic, pomp

Peru’s central bank should cut its rate tomorrow

This Reuters article tonight reports that seven of nine economists (a.k.a self important dumbasses) say that Peru’s Central Bank (BCRP) will not cut its prime lending rate from the current 6.5% at its meeting tomorrow. Well, let’s go out on a limb and say that Velarde&Co will show those seven to be wrong. Otto is siding with the other two and says the BCRP will in fact cut rates by 0.25%. Reasons:
1) CPI inflation came in at a benign 0.11% for January. With less inflationary pressure clearly in the pipeline, the worry about paying more for imports is lessened.

2) A lot of the “feared” drop in the Nuevo Sol has already been baked into the market. The Sol has appreciated significantly in the last couple of weeks, now standing at S/3.245 to the greenback.
3) It will go hand-in-hand with FinMin Carranza’s crisis planning (even though his own plan is pissing somewhat into the wind). During Carranza’s first term as FinMin there was no love lost between himself and bank chairman Velarde, but this will be a chance to show that Peru’s two main macro institutions can work together.

4) Exports (and the lamentable “buy Peruvian” campaign just re-started by Twobreakfasts) will benefit from a weaker Nuevo Sol.

5) The BCRP will have to cut anyway! So it may as well start now.

So it’s Otto versus the local pros. Look out for the announcement this time tomorrow.

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