Peru Raises Reserve Requirement to Ease Inflation Pressure

Peru’s central bank increased reserve requirements for a second straight month to ease inflation pressures amid surging demand for credit, goods and services.

Banco Central de Reserva del Peru raised the average reserve rate by 0.25 percentage point of banks’ sol- and dollar- denominated deposits. The increase takes effect March 1, the central bank said in an e-mailed statement yesterday.

Policy makers have raised both the reserve ratio and their benchmark rate twice this year as bank lending feeds a boom in private investment and consumer demand in the $153 billion economy. The central bank is seeking to prevent rising international prices for food and crude oil from contaminating other parts of South America’s sixth-largest economy, bank president Julio Velarde said last week.

“They’re trying to deflate any potential bubble in the credit market and moderate demand-side pressures on inflation,” said Benito Berber, a currency strategist at Nomura Securities Inc, in a phone interview from New York. “The risk is that by the end of the year inflation could have tripled. They’re putting the brakes on right now.”

Higher commodity prices sparked the fastest monthly inflation in more than two years in January and will likely push the annual rate “very close” to 3 percent, Velarde told reporters Feb. 24.

Peru’s sol gained 0.1 percent to 2.7735 per U.S. dollar at 11:39 a.m. in New York, from 2.7765 on Feb. 25.

Consumer Prices

February’s rise in consumer prices is forecast to match January’s 0.39 percent month-on-month increase, according the median estimate of eight analysts surveyed by Bloomberg. The annual inflation rate for February is projected to rise to 2.2 percent, compared with 2.17 percent in January.

Peru’s national statistics agency will issue its monthly inflation report tomorrow.

The increase in the reserve ratio seeks “to keep inflation expectations anchored within the 1 percent to 3 percent target range,” the bank said in yesterday’s statement.

Outstanding bank loans rose 19 percent to 110 billion soles ($39.6 billion) in January from a year earlier, the Andean country’s banking association Asbanc said last week.

Sol Volatility

The central bank extended reserve requirements to include the overseas units of domestic lenders for the first time on Jan. 1 as it seeks to prevent short-term capital inflows from increasing volatility in the sol.

Peruvian banks’ average reserve requirement was 12.1 percent during Feb. 1 to Feb. 22, according to central bank data.

Economic growth accelerated in the fourth quarter as infrastructure projects boosted construction output. Gross domestic product rose 2.2 percent from the third quarter, the government’s statistics agency said today in an e-mailed report.

GDP climbed 9.2 percent in the fourth quarter from the same period a year earlier, taking growth for 2010 to 8.8 percent, the agency said. Analysts forecast a 9.1 percent year-on-year expansion, according to the median estimate of 10 economists in a Bloomberg survey.

“Growth will probably be close to 9 percent in the first quarter, and that’s very high,” said Pedro Tuesta, a Washington-based economist for Latin America at 4Cast Inc, in a phone interview. “The central bank will keep tightening to stay ahead of the curve.”