Policy paralysis here to stay in Peru

The impeachment of Peru’s controversial (former) left-wing President Pedro Castillo might bring short-term relief to investors, but it does not solve Peru’s governability issues. With policy paralysis here to stay, business confidence and investment are likely to deteriorate and weigh on GDP growth. There’s a risk that continued political instability entrenches Peru’s country risk premium at a higher level, which may force the central bank to keep monetary policy tight for longer.