Lima and Wall Street Anticipate Boost from Potential Fed Rate Cuts
A decline in the Federal reserves interest rate is projected to positively impact stock markets in both the United States and Peru, according to financial analysts. The market anticipates two additional cuts to the Fed’s reference rate this year.
Currently, the Lima Stock Exchange has seen a meaningful 25% yield year-to-date. Analyst Carlos Zevallos estimates that a Fed rate reduction in September could further boost local yields by 1% to 3%. In the US, the S&P 500 has risen 13% this year, with zevallos projecting a potential additional yield of up to 5% following a Fed rate cut.
César Huiman, senior analyst at Equity Research of Income4 SAB, agrees that lower Fed rates would likely increase the value of shares on Wall Street, benefiting Peruvian investors with holdings in the North American market. He also notes that a Fed rate decrease typically encourages capital flow into markets like Peru, potentially triggering a rally.
However, Huiman cautions that the impact on the Peruvian stock market may be moderate, citing ancient data. “In the last ten years, when there were Fed rate cuts, it only promoted the Peruvian bag at 0.9% on average, after three months of the cut,” he stated.
Furthermore, a reduction in the fed rate could create space for the Central Reserve Bank of Peru (BCRP) to lower its own interest rates – as it did in early September. Huiman explains that a lower BCRP rate would improve access to credit for companies,stimulating the economy and potentially enhancing the financial performance of businesses,particularly those focused on domestic demand.
