LONDON- Sovereign dollar bonds issued by Peru suffered fresh falls on Monday after President Pedro Castillo named moderate economist Pedro Francke as finance minister.
The 2060 bond slipped 2.4 cents in the dollar to 87.9 cents, its lowest level since late June, Refinitiv data showed. Many other issues slipped 1 cent or more.
Peru's bonds dropped sharply last week, its currency plumbed record lows and stocks tumbled after Castillo appointed Guido Bellido, a member of his Marxist party, as prime minister on Thursday, dimming investor hopes for a moderate administration.
Francke, appointed late on Friday, has had a moderating role since the presidential run off, setting communicating bridges with the market, said Diego W. Pereira at JPMorgan. However, this did little to diminish the lingering uncertainty over the government's political and economic agenda
"Francke faces material challenges given President Castillo’s unveiled political agenda," said Pereira in a note to clients. "In the near term...Francke needs to promptly redefine the main urgencies for the 2022 budget".
JPMorgan expected to 2022 public sector spending to remain at least at 25% of GDP if not more.
Castillo announced immediate additional assistance to households as well as a new public sector capex programme as well as a boost to the agricultural fund.
Meanwhile, data released over the weekend showed that price pressures were on the rise, with consumer prices rising 1.01% in July, marking the fastest rate in 52 months.
Annual inflation is now tracking significantly above the 3% upper-limit of the inflation target band, and core inflation had been trending up, said Alberto Ramos at Goldman Sachs, predicting central bank policy makers might have to raise rates currently 0.25% soon.
"This (inflation pressures), rising risk premia, and heightened policy and political uncertainty and risk justify policy rate liftoff from the current extraordinarily accommodative monetary stance already at next week’s MPC meeting," Ramos said in a note to clients.
(Reporting by Karin Strohecker; Editing by Tom Arnold and Mike Harrison) ((karin.strohecker@thomsonreuters.com; +442075427262; Reuters Messaging: karin.strohecker.reuters.com@reuters.net))
