PERU: MACROPRUDENTIAL POLICIES TO ACHIEVE FINANCIAL STABILITY Renzo Rossini General Manager Central Reserve Bank of Peru
Dollarization Central Reserve Bank of Peru 2
Russian crisis Reduction of short-term foreign liabilities: -50% in Aug.1999 *. Real currency depreciation: 13% in Aug.1999 *. Increase of non-performing loans in foreign currency: from 5% to 10%. Credit crunch: rate of growth of credit in foreign currency declined from 26% in Jul.1998 to -4% in Jul.1999 *. Financial crisis: the number of banks declined from 26 to 14. * 12-month rate of change Central Reserve Bank of Peru 3
Inflation targeting: 2002 Interest Rate and Inflation Targeting 45 40 35 30 25 20 15 10 5 0 Ene96 May96 Sep96 Ene97 May97 Sep97 Ene98 May98 Sep98 Ene99 May99 Sep99 Ene00 May00 Sep00 Ene01 May01 Sep01 Ene02 May02 Sep02 Ene03 May03 Sep03 Ene04 May04 Sep04 Ene05 May05 Sep05 Ene06 May06 Sep06 Ene07 May07 Sep07 Ene08 May08 Sep08 Ene09 May09 Sep09 Ene10 May10 Sep10 Ene11 May11 Sep11 Ene12 Interbank Interest Rate Core Inflation Lower Band Upper Band 4
Hybrid Inflation Targeting 5
Reserve requirements Active monetary policy includes reserve requirements as a liquidity management tool to stabilize credit. 6
International Liquidity Liquidity buffer against international financial risks. 60000 50000 40000 30000 International Reserves (Millions of US$) 2006 2010 2012* NIR / GDP (%) 18.7 28.7 29,5 NIR / Short-term debt 2.9 5.2 6,1 NIR/ M2 (%) 80.2 90.6 91.0 48,816 53 644 20000 10000 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* * International reserve balances at February 23, 2012 7
FOREX intervention FOREX intervention aimed at reducing exchange rate volatility in order to prevent balance-sheet effects. FOREX intervention and exchange rate 3,70 4000 3,50 3000 2000 3,30 1000 3,10 0 2,90-1000 -2000 2,70-3000 2,50-4000 Ene01 Abr01 Jul01 Oct01 Ene02 Abr02 Jul02 Oct02 Ene03 Abr03 Jul03 Oct03 Ene04 Abr04 Jul04 Oct04 Ene05 Abr05 Jul05 Oct05 Ene06 Abr06 Jul06 Oct06 Ene07 Abr07 Jul07 Oct07 Ene08 Abr08 Jul08 Oct08 Ene09 Abr09 Jul09 Oct09 Ene10 Abr10 Jul10 Oct10 Ene11 Abr11 Jul11 Oct11 Ene12 FOREX (million USD): right axis ER (PEN/ USD): left axis 8
Fiscal Situation Fiscal consolidation and an active liability management to increase the share of domestic debt in local currency and to extend its maturity. Government Bonds Yield Curve 1/ 13,0 Jun-01 12,0 11,0 Yields (%) 10,0 9,0 8,0 Dec-04 Dec-05 Dec-08 7,0 Dec-10 6,0 Dec-11 5,0 4,0 3,0 0 5 10 15 20 25 30 term to maturity (years) 1/ End of period figures 9
10 Indicators of Public Debt Net Public Debt of 8.2 percent of GDP, with average term to maturity of 13 years. 45,9 Public Debt (As Percentage of GDP) 37,5 37,7 Gross Debt Net Debt Peru: Average term to maturity of public debt (In years) 15,1 10,3 13,0 11,7 30,1 21,7 4,6 7,8 8,0 7,4 8,4 8,2 *Forecast 2001 2005 2011* 2002 2006 2011 Domestic Foreign Total
Sterilized FOREX intervention with public sector deposits, reserve requirements and Central Bank CDs. Peru: Central Reserve Bank Balance Sheet (As percentages of GDP. Figures of December 31, 2011) Assets Liabilities International reserves 27,6 Public sector deposits 10,5 In domestic currency 6,7 In foreign currency 3,8 Reserve requirements 7,6 In domestic currency 2,6 In foreign currency 5,0 Central Bank instruments 3,6 Cash holdings 5,7 Other liabilities 0,2 Central Reserve Bank of Peru 11
Crisis management (2008) Peru: Monetary Operations of the Central Bank (Q_IV-2008) As percentages of GDP 1. REPO 1.5 2. FX Sales 1/ 6.2 3. FX Swaps 0.2 4. Reserve Requirements 1.4 Total 9.3 1/ Includes net issuances of exchange rate indexed Central Bank CDs 12
Macroprudential 35,0 33,0 Peru: Total credit to the private sector (As percentage of GDP) 31,0 29,0 27,0 25,0 23,0 21,0 19,0 17,0 Upper limit: +5 % around H_P trend Credit to private sector/ GDP Lower limit: -5 % around H_P trend 15,0 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 1/ At constant exchange rate. The trend is calculated using Hodrick Prescott filter. 13
Macroprudential Peru: Lima, metropolitan area housing market Price/Rent ratio 2010 II_Q 2011 III_Q Jesús María 11,8 12,9 La Molina 13,0 15,2 Lince 15,9 16,5 Magdalena 10,6 12,7 Miraflores 10,9 15,6 Pueblo Libre 14,5 15,0 San Borja 15,8 16,6 San Isidro 14,4 14,9 San Miguel 13,6 13,7 Surco 12,8 13,4 Average 13,3 14,6 14
Macroeconomic Coordination Committee MoF, CB and SBS 1. FSAP 2000 recommended a coordinated action for financial stability enhancing liquidity at fiscal and monetary level as buffers against systemic risks. 2. The banks supervisory agency, in line with the FSAP recommendations implemented: A dynamic provisioning scheme A countercyclical additional risk weighted capital requirement Additional capital requirements on FX exposures 15