06:44 AM EDT, 10/11/2024 (MT Newswires) -- The board of Peru's central bank (BCRP) late Thursday kept the local rate unchanged at 5.25% when market consensus saw a continuation of the 25bps interest rate cuts, noted Scotiabank.

The bank maintains its estimate of 5.00% by year-end.

The statement doesn't explicitly state the reason for the decision, although there are interesting points to consider, pointed out Scotiabank.

The first relates to the decrease in monthly inflation in September (-0.28% headline and flat for core). However, the BCRP estimates that headline inflation will increase during Q4, which is expected to be transitory due to a base effect. This shouldn't be concerning.

A second element is core inflation, stated Scotiabank. The BCRP highlighted in its statement that core inflation is above the midpoint (2%) of the target range, unlike in the previous statement, where it indicated that core inflation was within the target range (1%-3%). Rather than a reason for the pause, this could have been used as a justification for pausing the rate cut cycle.

Finally, the BCRP toughened its wording regarding the international context. The statement suggests that an intensification of international conflicts could drive fuel prices higher. By keeping the reference rate at 5.25%, the spread with the United States Federal Reserve rate is now positive (+25 bps), and the real interest rate remains at 2.8%, approaching the 2.0% considered a neutral level.

However, this still reflects a restrictive stance, added the bank.