Fujimori government enjoys an auspicious start; Economy Minister Cuba outlines his economic reform program; December inflation forecast revised up, risking a policy hike; and long end of the Soberanos curve price under pressure from fiscal risks
This report covers the first days of the new national government under President Keiko Fujimori. The first section discusses the first set of opinion polls, and the challenges that the new administration faces. Next, we discuss the economy, and review the May and June real GDP reports, which confirmed an El Niño-induced economic deceleration. Then we review the economic program presented by Minister of Economy and Finance Elmer Cuba. We argue that the reports may justify a downward revision to our forecasts, pending the government’s response to El Niño, and its implementation of the program. Finally, we argue that there is a risk of a rate hike in H2 2026, and that yields in the long end of the Soberano’s curve may have increased due to the large fiscal deficit.
The opinion polls published by Ipsos and Datum in the second week of August, and the June PMIs report from the Banco Central de Reserva del Perú, suggest that the Fujimori presidency has enjoyed an auspicious first two weeks. The key questions are: will this positivity last? What principal challenges lie ahead? Most past governments have begun with a honeymoon period -- but few could make it last.
The economic deceleration in May and June, and the economy minister’s economic program, have come into focus. According to the May and June real GDP reports from the Instituto Nacional de Estadística e Informática (INEI, the national statistics institute), economic growth decelerated sharply, growing by only 1.8% in June, following 2.2% in May and 3.8% in April. However, Cuba indicated that high commodity prices would not last forever, and announced an economic program designed to induce productivity and sustainable economic growth above 4% until the end of Fujimori’s term.
The BCRP Board’s policy stance decision and the long end of the sovereign curve came into focus. While most analysts anticipated the BCRP’s Board retaining its policy stance unchanged at its August 13 meeting, the upward revision in inflation expectations to 3% and the persistent price pressures from the Middle East war and the El Niño shock could provoke a rate hike in H2. In fact, we have revised up to 4.3% from 3.9% our headline Consumer Price Index (CPI) inflation for December 2026, to converge to BCRP’s official 2% (+/- 1%) inflation target range only in March 2027. It is too early to work this into our policy rate forecast, but the risk has increased. At the same time, fiscal pressures are increasing the yield on the long end of the Soberanos curve.
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