Pressures caused by upcoming elections and lobbying by the
exporters association are not going to alter Perus
money-management policies, the head of the central bank has
Julio Velarde, President of the Central Reserve Bank (BCR),
told Emerging Markets that there are no plans either
for exchange rate controls or for a rapid increase in interest
There could be an impact if there was rapid
appreciation of the sol, but this has not been the case. While
the sol is stronger, it has not appreciated at the same level
of other countries. We are avoiding volatility, he
Jose Luis Silva, outgoing president of the Peruvian
Exporters Association (ADEX), disagrees, and has called
for the bank to adopt drastic measures to stop the
dollar from falling against the sol.
ADEX wants the BCR to buy dollars more aggressively, and has
demanded changes in several government policies, including an
increase to 1%, from 0.05%, in the tax on deposit certificates;
the possibility for exporters to pay their taxes in dollars
instead of soles; and a 50% tax break for companies reinvesting
He said this would not affect government accounts, because
the treasury could use dollar-based taxes to service its
debt or create special stabilization funds.
The proposals have been rejected by the Economy and Finance
Ministry as anti-technical, and Velarde said that
exporters need to admit that their products are also
increasing in value.
The sol has appreciated 2% against the US dollar so far this
year and approximately 10% over the past 12 months. The BCR
does intervene in the market buying dollars, but Velarde said
this was to protect people and businesses with dollar-based
accounts or loans. The bank has acquired nearly $2.3 billion so
far this year.
The simple reason is because we are still a partially
dollarized market. Loans in dollars represent 45% of loans.
More than avoid appreciation of the currency, we want to avoid
change that would affect companies and families with savings in
dollars, he said. While still high, Peru has rapidly
dedollarized its economy in the past decade.
Velarde said he does expect the dollar to soften somewhat.
I do not see it falling too much in the 12 months [of
2010], he said. He also foresees in the medium term a
basket of currencies in which countries can hold reserves.
It has only been since World War II that you have had a
dominant currency. While the dollar will remain the major
player, there are now other currencies so that we can have a
Velarde is more flexible on interest rates, which at 1.25%
are the second lowest in the emerging markets after Chile,
where it is 0.5%. He said it was impossible to predict rates,
but he did offer the optimal situation for interest rates in
Peru if economic conditions follow forecasts.
It is hard to pinpoint an exact rate, but if inflation
is 2% and GDP is growing at its potential, which is 6% this
year, the interest rate would be close to 4%. There is a range
and it can never be set in stone, said Velarde.