MercoPress. South Atlantic News Agency

Relief for Peruvian investors: orthodox central bank president remains in the post

Julio Velarde made public his decision this week, following long discussions with the Minister of Finance Pedro Francke of the new Castillo administration

Julio Velarde will remain as president of the Peruvian Central Bank for another five years, the same job he has held since 2006, and is acknowledged as the man who helped stabilize the country's markets, with low inflation. The news should come as a relief for investors and holders of Peruvian bonds.

Apparently the decision made public this week was taken following long discussions with the Minister of Finance Pedro Francke of the new Peruvian administration of president Pedro Castillo.

“It's another step in the right direction, and it will help to calm investors nerves”, according to Omotunde Lawal from the emerging markets debt department at Barings LLC in London. Since last 28 July, when Pedro Castillo took office, the Peruvian currency dropped to historic lows given the uncertainty caused by the naming of extreme left members to his cabinet.

“The national budget will give us further clues, but the fact that Velarde has remained in the job is a great advance”, added Lawal. Under Peruvian law, the central bank has seven members, four proposed by the Executive and three by congress. Apparently another former central banker of great repute, Oscar Dancourt, is also under consideration.

Furthermore, Finance minister Francke asked for guarantees about economic policy from president Castillo before accepting the job. Anyhow there are still some doubts lingering as to how the central bank will react to the expansive fiscal policies promised by Castillo and how the final board of the Central bank will be made up of, since the president has yet to confirm a working majority in Congress.

In other words, despite the momentary relief a medium term degree of uncertainty remains, and only coming events will help to sort it out.