Central Bank Review: Neutral Stance Maintained as Underlying Inflation Remains Contained

Research evidence excerpt

Central Bank Review: Neutral Stance Maintained as Underlying Inflation Remains Contained

IdeaMtarget range, and activity holding up, we continue to expect the BCRP to remain on

hold at 4.25% over the coming months. The addition of El Niño as an explicit

inflation risk reinforces a cautious stance but is unlikely, by itself, to alter the

current policy outlook.

Strategy: Markets entered the meeting pricing an extended pause, with around one

additional cut through 2026. Given the decision and statement were broadly in line

with expectations, we see limited implications for the front-end. Despite only a

small easing cycle being priced, the curve remains relatively steep, which we

continue to attribute in part to positioning ahead of a potential upcoming liability

management operation. As such, we do not expect the meeting to be a catalyst for

meaningful repricing across the curve, although some upward pressure on front-end

rates could emerge once the liability management operation uncertainty is resolved

and positioning normalizes.

Looking ahead, inflation remains the key macro risk to current pricing. While the

BCRP continues to characterize recent price pressures as temporary, a more

persistent pass-through from food prices or a materialization of El Niño-related risks

could challenge expectations of a prolonged pause and potentially lead markets to

price a greater probability of hikes. In that scenario, we would expect the front end

to come under greater pressure, creating additional flattening pressure on the curve.

What to watch for: Upcoming CPI prints will be key, particularly the breakdown of

inflation – especially food and energy components – to assess whether recent

pressures prove transitory. We will also monitor oil prices and broader geopolitical