Peru’s central bank may allow the country’s pension funds to invest more abroad to cool demand for the sol, said bank President Julio Velarde.
The bank’s board may increase the ceiling on overseas investment to 34 percent of the funds’ portfolios “in the near future,” if the asset managers are nearing the current 32 percent limit, Velarde said in an interview in Chicago yesterday.
Policy makers raised the limit Jan. 18 for the first time since 2010 after foreign currency inflows spurred the sol to its strongest level in 16 years. Peru’s pension fund industry had 30 percent of its $38.5 billion in assets invested abroad as of Jan. 25, according to industry regulators. Congress in 2011 gave the central bank authorization to take the limit to 50 percent.
“I would like it to be increased periodically, every quarter, something like that, it depends on the situation,” Velarde said. “There are still opportunities in the country. I don’t believe pension funds will invest more than 40 percent now. In two or three years, who knows.”
The sol depreciated 0.4 percent to 2.5775 per U.S. dollar at 1:25 p.m. in Lima. The currency touched 2.5390 on Jan. 14, the strongest level since October 1996, according to data from the industry superintendency.
The central bank yesterday increased lenders’ average reserve requirement for dollars by 1 percentage point effective tomorrow, the steepest of six increases in the ratio since May, to stem sol appreciation.
Companies seeking dollar financing abroad, demand for the government’s bonds and record foreign direct investment have spurred inflows, leading the central bank to step up dollar purchases in the spot market this month.
Though the differential between the central bank’s benchmark lending rate and record low borrowing costs in Europe, Japan and the U.S. isn’t the main reason why investors are buying Peruvian bonds, Velarde said Jan. 25 the board wouldn’t rule out a rate cut now that inflation is under control. The bank has held its key rate at 4.25 percent, the lowest level in Latin America after Colombia, since May 2011.
Lowering rates would impact inflows “a little bit, of course, because there is some portfolio coming in, but most of the money is FDI and long-term loans,” he said yesterday.
Gross domestic product will rise as much as 6.3 percent this year, which is below the economy’s potential growth rate, and the bank doesn’t see inflationary pressures, he said.
“We don’t see a need for a dramatic change of rates now,” he said.