Peru cenbank could allow more pension funds invested abroad

LIMA Wed Oct 3, 2012 6:43pm EDT

LIMA Oct 3 (Reuters) - Peru's central bank wants to curb speculative inflows of foreign capital by loosening restrictions on how much of the country's private pension funds can be invested abroad, the bank's manager said on Wednesday.

Julio Velarde, the manager, said he is discussing the policy with the banking regulator. He said the foreign investment ceiling for the country's private pension system would be raised "gradually" and in response to fluctuations of the local sol currency, which has strengthened 3.63 percent so far this year against the dollar.

The central bank has bought a record number of dollars to offset the sol's gains this year. It raised bank reserve requirements for a third time on Sunday, as recent stimulus measures announced in the United States and Europe have encouraged foreign investments that are fueling Peru's rapid credit expansion and growing demand for bonds.

"Obviously, ideally the pension funds would stay in Peru, but as long as there are no new financial instruments, it is necessary to have an escape valve to avoid an asset price bubble locally," Velarde said.

Peru's private pension system is run by four funds that manage some $30 billion, the most important source of investment capital in the country.

Peruvian law allows private pension operators to invest up to 50 percent of the assets they manage in foreign markets, but the central bank now caps that at 30 percent.

Peru is on track to post growth of around 6 percent this year, one of the fastest-paced economies in the region. Velarde said he expects inflation to slow to 3 percent by the end of the year, the upper limit of the bank's target range.

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