Peru: Central Bank leaves interest rates unchanged but raises reserve requirements on foreign currency deposits
February 7, 2013
At its 7 February monetary policy meeting, the Central Bank left the reference rate unchanged at 4.25%, in a move expected by the market. The decision marks 21 consecutive months in which monetary authorities have refrained from changing the main monetary policy rate.
Monetary officials argued that economic growth is near its potential and inflation is reflecting the reversal of supply-side shocks. Moreover, the Bank acknowledged that inflation will gradually converge to the mid-point of its target (2.0% plus/minus 1.0%) in the coming months. The next monetary policy meeting is scheduled for 7 March.
Meanwhile, on 30 January, the Central Bank announced that it would raise the average reserve requirements ratio by 1.0 percentage point only on foreign currency deposits. The decision, effective as of 1 February, follows a similar move in December last year and seeks to soften the impact of capital inflows from abroad on the expansion of credit and, consequently, on the appreciation of the local currency. Moreover, the Bank announced that it would lift to 25% from 20% the reserve ratio for banks' foreign long-term loans and bonds that exceed a "prudential limit" of 2.2 times of effective equity. In addition, monetary officials stated that they would lower reserve ratios for banks that increase lending and investment abroad, in order to slow the expansion of credit in foreign currency in the country.
Author: Ricardo Aceves, Senior Economist