The BCRP held its policy rate at 4.25%, as expected. The statement noted that inflation has risen to 3.7% (core) and 3.8% (headline), above the target range, due to factors related to weather events, rising international energy prices, and disruptions in the supply of natural gas and natural gas liquids (NGLs). Both year-on-year inflation and inflation excluding food and energy are projected to return to the target range by the end of the year and to stand at around 2% in 2027, as the effects of supply shocks dissipate. With year-ahead inflation expectations rising to 2.5% on the back of early 2026 inflation pressures, the ex-ante real policy rate has fallen to 1.75%. This will likely keep the BCRP on hold for now while inflation and inflation expectations settle back down, helping to raise the real policy rate back towards the 2.0-2.1% neutral estimate. Still, another notable increase in expectations could prompt a rate adjustment.
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