Peru: Central Bank stays put but raises reserve requirements
May 10, 2012
At its 10 May monetary policy meeting, the Central Bank decided to maintain the reference rate unchanged at 4.25%, in a move widely expected by the market. Monetary authorities have kept the main monetary policy rate unaltered for 12 consecutive months. As in previous statements, monetary officials argued that the decision was justified as the recent deviation in inflation versus the Bank's target is only reflecting temporary supply factors, while the pace of economic growth is hovering close to its potential. Moreover, officials stated that inflation expectations remain anchored within the target of 2.0% (with a tolerance margin of +/-1.0%). The next policy meeting is scheduled for 7 June. Furthermore, in order to curb the pace of liquidity expansion - without putting additional pressure on the currency - the Central Bank announced on 1 May that it raised the average reserve requirements ratio on local and foreign currency deposits, the first such move in one year. The Bank justified its decision as a pre-emptive move, in a context of rapid de-dollarization in local deposits and low global interest rates. In addition, monetary authorities created a new reserve requirement of 20% for long-term bond holders.
Author: Ricardo Aceves, Senior Economist