MercoPress. South Atlantic News Agency

Inflation and strong currency threaten Peruvian economy

Minister Luis Carranza

As several other commodity-exports dependent countries in South America, Peru's economy is booming growing at an estimated 8%, following last year's 7.6%. However this success and the massive influx of US dollars is distorting monetary policy and delaying an improved wealth distribution.

This has led the Peruvian central bank to raise its benchmark interest rate further to keep inflation under control admitted on Thursday Economy Minister Luis Carranza. In September inflation reached 0.61%, the highest in thirty months. The central bank's inflation target for this year is 2 percent, with a tolerance band of plus or minus 1 percentage point. Inflation in the nine months through September was 3.02%. "The central bank could continue raising the rate because of this theme of inflation," Carranza He said the economy should grow "about" 8% this year, up slightly from 7.6% last year. "Our average growth rate is faster than the rest of the world". Peru's currency, the sol, is near its strongest level since 1998 against the dollar and has frustrated some exporters as it approaches 3 per dollar. But Carranza said the country is not losing competitiveness because of the stronger currency and said the central bank will likely keep on buying dollars to build up foreign reserves and soak up excess liquidity from the local currency market. The bank has been intervening almost daily to buy reserve "The strength of the Peruvian currency reflects the fact Peru is wealthier, before the rest of the world. It also reflects current factors which are out of our control", said Carranza. "Our main task is not to guarantee profits to any sector or class. Our main task is generating competitiveness for the economy and those are the measures we're working on, which complement those already adopted such as a significant reduction in tariffs helping the import of capital goods and equipments for our industrial base".