IDEAS home Printed from
   My bibliography  Save this paper

Monetary policy operating procedures: the Peruvian case


  • Choy, Marylin


Both the objective and the powers of the central bank are clearly specified in its legal framework. In this respect, its aims and activities are transparent and explicit. Monetary policy influences the monetary aggregates through market instruments, sending clear signals to economic agents regarding the direction and objectives pursued. Despite major changes in monetary policy management, policy implementation still encounters problems. The main problems are: • A modest quantity of money: total liquidity (including deposits in local and foreign currency), i.e. the quantity of money in circulation in the economy, is equal to just over 180/0 of GDP with a high degree of dollarisation (almost 75 0/0 of total deposits is in foreign currency). The persistently low level of local currency means that seasonal liquidity flows, generated for example by tax payments, can become quite large in relative terms. • The central bank’s capacity to buy foreign exchange is restricted by the cost of sterilisation. This may induce a rise in interest rates, in turn attracting larger foreign capital inflows and leading to an appreciation of the exchange rate. • The dealing room’s intervention strategy has improved; however, it is still restricted to buy dollars, while maintaining a passive stance when the market requires a larger dollar supply. • Financial market segmentation: the financial market is made up of groups of institutions of widely different size and performance. Interinstitutional behaviour is therefore not homogeneous. Market segmentation creates situations in which the system as a whole can show a liquidity surplus, while on an individual basis some banks are encountering liquidity problems. Institutions with liquidity problems do not have access to interbank loans, owing either to the market’s inefficiency or to the institution’s specific situation. This creates a need for collateralised credits, bringing about an increase in the monetary base, despite the excess reserves in the system as a whole. As these entities’ demand for central bank CDs is usually small, the scope for repurchase operations as a source of funds is limited.

Suggested Citation

  • Choy, Marylin, 1999. "Monetary policy operating procedures: the Peruvian case," MPRA Paper 34966, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:34966

    Download full text from publisher

    File URL:
    File Function: original version
    Download Restriction: no


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Andrés Elberg & Vittorio Corbo & José Tessada, 1999. "Monetary Policy in Latin America: Underpinnings and Procedures," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 36(109), pages 897-927.

    More about this item


    monetary policy instruments;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:34966. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter) or (Rebekah McClure). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.