Peru’s Central Bank Increases Reserve Requirements

On August 8, 2010, the central bank of Peru (BCRP) increased financial system reserve requirements again for domestic and foreign currency operations. According to the central bank’s resolution, starting September, reserve requirements on local and foreign currency deposits in banks will rise to 8.5% from 8%. Marginal requirement for domestic currency deposits was increased to 15% from 12%. Required reserves against short term (less than two-year) foreign currency loans were raised to 65% from 50% (40% in June and 35% in May), effective August 8, and marginal requirements for foreign currency deposits in banks were increased to 50% from 45%, starting September. These new measures complement the August interest rate hike, and attempt for rates in foreign currency to move in tandem with rates in domestic currency, determined by the monetary policy rate. These measures are also intended to avoid short term capital inflows and liquidity to translate into an unsustainable expansion of credit.

Editor’s Note: This post is excerpted from a much longer analysis available exclusively to RGE Clients, LatAm Focus: Mexico and the U.S. together for the Good Times and Bad

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