Peru Looking to Counter Speculative Flows With Reserve Boost

Peru’s Finance Minister Miguel Castilla said efforts to cool credit without raising interest rates are aimed at curbing speculative inflows that helped send the currency to the strongest level in 15 years.

“We don’t want short-term capital coming in and out, we want long-term capital,” he told reporters today at a conference in Lima. “But with so much liquidity in the U.S., capital is going to continue entering the market.”

Peru’s central bank increased reserve requirements yesterday for a second straight month to stem lending growth and contain inflation as central bank bond-buying in the U.S. and Europe lures investors to higher-yielding, emerging-market assets. Peru’s reference rate probably will be held at 4.25 percent for a 17th straight month when the central bank meets Oct. 11, according to all four economists surveyed by Bloomberg.

Banco Central de Reserva del Peru raised the average reserve requirement by 0.5 percentage point for local and foreign currency. Banks’ average ratio was 16.2 percent for soles in August and 39.5 percent for dollars, the bank said in an e-mailed statement Sept. 30.

Demand for the Andean nation’s local currency bonds pushed the sol to 2.59 per U.S. dollar on Sept. 17, the strongest since 1997, data from the financial regulator show.

Inflation Forecast

Peruvian consumer prices rose 0.54 percent in September, the quickest pace in six months and compared with a 0.51 percent increase in August, and 3.74 percent from a year earlier. Inflation probably will be 3 percent this year as growth remains “positive,” Castilla said today. The central bank targets 2 percent plus or minus 1 percent.

The government sees “double-digit” private investment growth this year, while public spending expanded 25 percent in the first half and should grow 30 percent by year-end, he said.

A package of proposed capital market rule changes will be ready in two months, Castilla said.

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