Central Bank Operations and their Current Challenges in Peru - Paul Castillo B. Central Reserve Bank of Peru
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Central Bank Operations and their Current Challenges in
Peru
Paul Castillo B.
Central Reserve Bank of Peru
XI Central Banking Operations (Digital) Meeting
June 2021
CEMLA
Central Bank Policy Response
Reduction of policy rate to historical minimum
01 Reduction of the policy rate between March and April 2020, from 2.25% to 0.25%, its historical minimum.
Forward guidance: The BCRP Board of Directors emphasized that it considers appropriate to maintain an expansionary
monetary stance as long as the negative effects of the pandemic on inflation and its determinants persist.
Easing of reserve requirements
02
Reduction of the reserve requirement in soles from 5% to 4% and of reserve requirement on FX external liabilities with terms below
two years from 50% to 9%.
Reduction of banks’ minimum current account requirement in soles with the BCRP from 1.0% to 0.75%.
Suspension of the additional reserve requirement associated with dollar loans.
Financial system liquidity
Repos up to 3 years (securities and FX).
03
Easing of portfolio repos (new scheme includes factoring, entities rated up to B +, reduction of minimum guarantee).
Discount window (elimination of limit on operations).
New liquidity facilities: (i) Repos under Government Loan Guarantee Program; (ii) Repos conditional on rescheduling of loan
portfolios; and (iii) liquidity facility under Government Loan Portfolio Guarantee.
Reduced volatility in long-term interest rates and the exchange rate
2
04 FX intervention through spot and derivatives operations.
The current stance of Monetary Policy
i) Low real interest rates
Monetary Policy rates
( In percentages)
Market expectations for the Monetary policy rate
Nominal rate
( In percentages)
Proyecciones de la TPM (%)
Nominal rate 3,00
Real rate Real rate
2,50
2,00
1,50
1,00
0,50
0,00
Q321 Q421 Q122 Q222 Q322 Q422 Q123 Q
Extranjeros
Foreigners(rango)
(range) Extranjeros
Foreigners(mediana)
(Median)
Local Banks CD Implied rate
Apr.13 Nov.13 Jun.14
Apr Jan.15 Aug.15 Mar.16 Oct.16 May.17
Jan.15 17 JulJul.18
DecDec.17 Apr 20
Set.19 Apr.20 Nov. 20 Jun.21
18
13
3ii) Large volumes of liquidity in the financial system
4Results
Peru’s GDP is expected to recover to pre-crisis levels by 2022, with a good performance among EMEs.
GDP Real GDP
Growth (Index 2000 = 100)
Average annual growth
(2001-2019)
Peru 4.9
255 Emerging
253 Peru
4.4 246
economies** 237 Emerging
235 World 3.7 228 economies**
215 Colombia 3.8 210 World
200
Chile 3.7
195
Latin America 2.4
175
Brazil 2.2 158
154 LatAm
155
Mexico 1.9
135
115
95
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020* 2021* 2022*
**Excludes China.
Source: IMF (World Economic Outlook Database, October 2020) and BCRP (Peru).
5Results
Countercyclical expansion of credit to the private sector
Credit to non-financial firms: as of January 2020
(Annual growth rate)
23.1 22.1
12.9 11.8
8.9 8.5
6.2
4.2
0.7 0.4
-0.2
Peru
Brazil
New Zealand*
United States
Germany*
China
Chile
Russia
France
Mexico*
Australia
Note: for China, includes credit to the public and private sector.
* As of December 2020.
Source: Central banks
6Results
Inflation subdued and within the Central Bank target range
Inflation Forecast: 2021-2022
(Last 12-month % change)
7New challenges for BCRP Monetary Operations
• Mitigate Volatility in financial markets.
– Fears of sooner than anticipated FED´s monetary policy reversal are generating
volatility in capital flows.
– The uncertainty about the direction of macroeconomic policies under a new
government in Peru has triggered an increase in the demand for foreign assets.
– Congress has pass a new Pension Fund withdrawal, which also is generating
volatility in long-term interest rates
• Contain pressures in foreign currency liquidity.
– Demand for deposits in foreign currency has increased recently in response to
higher uncertainty.
8Targeted Liquidity Provision
Repos to inject FX
To reduce pressure on FX liquidity
Repos with bank loans
guarantee by the National
Government Stabilize Financial
To provide liquidity to small
financial institution.
Targeted Markets
liquidity
Repos to provide liquidity to Pension
Funds: provision Support
-To reduce volatility in long-term monetary policy
interest rates
Fx Intervention
transmission
9Banks faced large FX net demand from local clients
Net offer flows in the spot market
3
2
1
USD Billion
0
-1
-2
-3
-4
Jun.-20 Ago.-20 Oct.-20 Dic.-20 Feb.-21 Abr.-21 Jun.-21
Comercial, Food, Refineries, Telecom and Electric Mining and Energy
Retail Customers Non-residents
Pension Funds Others
Total
10In May-June, local banks lost USD 1.5 billion and USD 572 million in term and demand deposits,
respectively, which put pressure on USD liquidity in the local interbank market. As a result, the USD O/N
interbank rate increased from 0.25% to 0.80%.
USD Repo Outstanding Interbank ON Loans
(USD million)
(USD million and %)
4 000
400 0,90
3 500
350 0,80
3 000
300 0,70
2 500 0,60
250
2 000 0,50
200
1 500
0,40
150
0,30
1 000 100 0,20
500 50 0,10
0 0 0,00
03-May. 08-May. 13-May. 18-May. 23-May. 28-May. 02-Jun. 07-Jun. 12-Jun. 2021-Ene. 2021-Feb. 2021-Mar. 2021-Abr. 2021-May. 2021-Jun.
Size Rate
11Non-resident investors reduced their BTPs holdings from 52% to 45% during 2021. Pension Fund
Managers (AFPs) and the BCRP bought BTPs. BCRP has open a Repo facility to AFP to provide liquidity to
this market.
Latam 5: GBI-EM Index (Local Currency) Cumulative change in BTP nominal holdings by group
31Dec20 = 100 8
105
6
4
100 2
PEN billions
0
-2
95
-4
-6
90
-8
-10
Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21
85
04-Jan 25-Jan 15-Feb 08-Mar 29-Mar 19-Apr 10-May 31-May Non residents Pension Funds Private Banks
Sources: BCRP based on data from CAVALI and SBS
Peru Brazil Colombia Chile Mexico
Source: Bloomberg
12Non-residents escalated their demand for hedging and residents increased their preference for dollar-
denominated deposits. The BCRP has continued to use FX intervention through spot and swap operations
to mitigate FX volatility.
Historical Volatility PEN
Intraday Volatility in pip Annualized standard deviations
13Challenges Ahead
1. Use effectively monetary policy instruments to smooth volatility in financial
markets.
2. Support the stance of monetary policy with the appropriated combination of
OMO.
3. Provide timely foreign currency liquidity in order to mitigate the impact of
higher volatility on credit and money markets.
4. Targeted strategy to inject liquidity to smaller financial institutions, mutual
and pension funds.
14You can also read
