Peru Central Bank Raises Reserve Requirements to Avert Risk of Overheating

Peru’s central bank increased the reserve requirement for short-term overseas loans as it seeks to prevent credit growth from fueling inflation in the South American country.

Banks must hold funds equivalent to 75 percent of borrowings abroad maturing in less than two years, up from 65 percent previously, the central bank said yesterday in an e- mailed statement.

The higher reserve requirement “reduces the possibility of short-term external capital inflows and other sources of transitory liquidity creating unsustainable growth in credit,” the statement said.

Rising private investment spurred Peru’s economy to grow 11.9 percent in June, the fastest since 2008, and led the central bank to increase its reference rate for a fifth straight month last week. Policy makers have also raised reserve requirements four times since June as they seek to avert inflationary pressures and prevent foreign inflows from destabilizing the local currency.

The bank increased its benchmark lending rate to 3 percent from 2.5 percent Sept. 9, citing robust domestic demand and “rapid” economic growth. Company and household borrowings may rise 20 percent this year, central bank President Julio Velarde said Sept. 9.

The sol has gained 3.5 percent this year, the second- biggest gain among seven major Latin American currencies tracked by Bloomberg. The Colombian peso has gained 13.6 percent over the same period.

The central bank this month increased the marginal reserve mandate to 120 percent of foreign banks’ short-term sol deposits, from 65 percent, to slow capital inflows.

To contact the reporter on this story: John Quigley in Lima at jquigley8@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.