“They are on the right track” He said Julio Velardepresident Central Reserve Bank of Peru (BCRP), When analyzing the Argentine stabilization program and low inflation since the beginning of 2024.
to some extent, Peru is often a reference case for stabilization plans in Latin America. After episodes Hyperinflation (exceeding 12,000% in 1990) and primary dollarization, The country managed to reduce this nominalism and unify the Peruvian sol: The country’s inflation rate is expected to reach 1.4% this year, and its currency is one of the least variable among emerging economies.
And on that path, Velardi is a central figure of stability The country’s currency: beyond the political chaos and succession of Peruvian presidents, Economist with a PhD at Brown (USA), The same university he attended Martin Guzmanoccupies Chairing the BCRP without interruption since 2006.
According to Villard, There are a number of factors that explain the success of the program, This allowed Peru to reduce inflation and support growth Rebuilding confidence in its currency: fiscal responsibility, flexibility in the use of instruments, and the accumulation of international reserves. Today, the BCRP economist highlighted Its assets amount to more than 90.5 billion US dollars.
“The Peruvian sol has remained the most stable currency so far this century, This is due to the low inflation rate and the strength of the macroeconomy, Velarde stressed during his presentation on the Buenos Aires Stock Exchange, at a meeting organized by Fundación Mediterránea and Fundación Capital.
He emphasized this in this sense It is “essential” to accumulate reserves to reduce risks. “There are events that affect any country and… Reserves are a safeguard against that“, insisted the describing economist Shocks External factors such as fluctuations in capital flows due to movements in global interest rates or events such as the Russian invasion of Ukraine or the Covid-19 pandemic.
“If you have reservations, people hope that exchange rate corrections are not that surprising. This ensures better access to the capital market. If someone has reserves, everyone will be more willing to lend to you and buy your bondsVelarde, who highlighted that Peru is one of the emerging countries with the highest participation of foreigners among holders of its sovereign debt, insisted.
At that point, he also insisted on it “The financial part is key” to maintaining stability. “The other thing is policy”Velarde, in exemplifying the case of Uruguay, identified low country risks with the “consensus” that is maintained regarding macroeconomic management, beyond changes in government.
When describing the Central Bank’s strategy for reform, he explained that after periods of hyperinflation there was a greater demand for slippers by citizens, which prompted the entity to “Making a profit for buying dollars.”
However, he also emphasized that the process of building credibility and maintaining overall stability is key “The end of financial dominance” He said: “There is control in spending, but the important thing is that there was no funding with the issuance of public spending.”
This allowed for lower inflation rates and the gradual rebuilding of Peruvians’ confidence in their currency. “It’s a process that happens over time“, Velarde explained about the Peruvians’ move to save and deal with slippers.
As detailed, In 1999, 82% of Peru’s credit was in dollars, while today it has fallen to 24% of the total. In contrast, local currency credit, which declined in the last century to about 2% of GDP, has risen to more than 28% of GDP, according to the latest available data. He concluded that “inflation leads to the disappearance of financial intermediation.”
When describing “Dual Monetary System” In his country, the economist stated that the stabilization process included legally authorized contractsand transactions and savings in foreign currency (this last point was formalized in the Constitution), although it was stated that the process of stabilizing and reducing inflation pushes people to resort to the local currency.
“When inflation falls, and if people get paid in slippers, it is easier to stay in that currency than to pay the cost of change. “But it’s a process.”“We do not issue dollars and it is part of the cover if there is any crisis or run. If there is a run on deposits, we can issue soles, but not dollars,” insisted Velardi, who stressed that the BCRP maintains a policy of strong reserve requirements on dollar deposits.
He then referred to the pillars guiding BCRP’s monetary policy and emphasized “flexibility” and management of available tools. “More than being a stable oak tree, you have to be a reed that bends,” he said. “You have to have the flexibility to face the wind and adapt. What matters is the path.” Among other points, This course includes interInnovations to “smooth out volatility.”
“In countries like ours, the capital market is small and movements can be very sudden, and there can be excessive volatility. We bought reserves when the currency appreciated, but that was to try to cushion the currency’s depreciation. The exchange rate is flexible and we have no obligation to any movement. The goal is to reduce volatility“, complete.