Peru to hike, but tightening cycle to be relatively short

Despite near-term headwinds from El Niño and tight fiscal policy, Peru’s economy is set to record robust growth of 2.8-3.0% in the next few years and outperform most other Latin American economies. Combined with above-target inflation, that’s likely to prompt the central bank (BCRP) to start raising interest rates next month. But with inflation to fall back next year, we think the cycle will be limited to just two 25bp hikes.