Investment Grade

All of them had recently reductions of tariffs (e.g. durum wheat fell from 17% in 2006 to 0% in July 2007). It is true that tariff reductions were not as effective as expected. It is also true, as mark Campodonico, that in Peru there are appropriate from the Ministry of agriculture sectoral policies (there is a law, the 28.812/06 that gives incentives to producers of hard yellow corn, but expected to be regulated) which could relieve inflationary pressures. Perhaps in this aspect need to deepen the Government of Alan Garcia to mitigate inflationary pressures and be less vulnerable to the vagaries of international prices of agricultural commodities. And hand the increase in the inflation rate, it comes the Peruvian currency appreciating this situation, makes a few years ago, at least in Latin America, since the circuit going from the devaluation of the currency to the rate of inflation and a new devaluation then inflation and devaluation was unintentional nominal exchange rate they go hand in hand.

But with the monetary policy of inflation which requires clear rules and a strict quasi compliance goals a higher inflation data immediately generates the expectation of rising interest rates and is for this reason that we see the immediate appreciation of the currency. In relation to the evolution of the exchange rate, that everyone would take as very good news the fact that Fitch Ratings raised the rating of the Peruvian debt to BBB-from BB + yesterday, putting it this way in the long-desired Investment Grade, represents a new concern to the Peruvian Government since it may increase the volume of capital from abroad which will push even more to local currency making you lose more competitiveness. Is why the Peruvian producers are very Moody by this situation because on the one hand they see that inflation undermines their profits, while the appreciation of the Peruvian sol removes them competitiveness. And worse is the situation for those producing sectors of Food where import duties have been removed. Anyway this situation is no concern to the President of the Banco Central of the reserve of the Peru, Julio Velarde, who, for most of the central bankers like what you expect (and want), the possible desaceleracion-recesion of the American economy, will result in a reduction of international prices of food.

In the BCR inflation projections, inflation will continue to rise until may, month in which will begin to see a drop in the prices of food commodities and which will impact positively on the domestic price level. If this is so, then it should not expect the RCB to increase rates at the next meeting since it wouldn’t make sense given the backlog of monetary policy have an impact on the real part of the economy. You will have to wait until April 10 to confirm if what said Velarde, is what he thinks the BCR. A rise in rates can be a bad sign because it shows that the inflationary situation will not be calm in the coming months (or even, BCR being perceived effects of runoff in price increases).

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