Interest rate rise spooks market

20 December 2015

The international community has been in panic mode on behalf of Brazil following this week's rise in the federal reserve bank rate. Almost 50% of private sector debt in Peru is denominated in dollars, so of course Peru is watching international developments closely. The dollar has recently appreciated substantially against emerging market currencies, including the Peruvian new sol. The rise of a quarter per cent rise in the federal reserve rate is minute, but with a clear signal of a gentle pathway upwards, and servicing international debt can only become more expensive.

However, Peru is probably better placed than most. It has issued fewer foreign currency bonds than Brazil, Chile, Colombia or Mexico, which will now prove a plus. And domestic growth is seemingly being reasonably well sustained, possibly at close to 3% this year, with increased volume in the mining sector helping to maintain revenues despite depressed prices.

The unknown for all concerned still remains China. The IMF's estimate is that a fall of one point in China's rate of growth results in a similar reduction in Peru, with minerals accounting for 7% of GDP. And Chinese data on electricity production and rail freight, it is suggested, do not fully back the calm analysis of the Chinese authorities.

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    The Peru Support Group exists to promote social inclusion, sustainable development and the observance of human rights in Peru. To that end the PSG highlights shortcomings in observance of established norms, whether international or local in nature, in its research, advocacy and publications. In so doing, it underscores the relationships that exist within the political system, how institutions work, and the effectiveness of policies that aim to reduce poverty and inequality within the context of sustainable development.

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