Rise in the reference rate would impact short-term loans

The Central Reserve Bank of Peru (BCRP) raised the reference interest rate to 2.50%. This figure is higher than pre-pandemic levels, since in February 2020 it stood at 2.25% for the fourth month.

Adrian Armas, Central Manager of Economic Studies of the BCRP, He noted that this increase could be reflected in the interest rate on short-term loans and those with low credit risk.

“What happens in nominal interest rates is that the pass-through effect of the monetary policy interest rate affects more the interest rate of short-term loans and those that have a low credit risk,” he explained.

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While the increase in price of smaller loans depends more on the credit risk premium and fixed costs. “[En ese contexto], the monetary policy rate has very little effect, “added Armas.

About, Enrique Diaz, president of the consulting firm MC&F, explained that short-term loans are those for consumption and working capital of companies. While, Interest on mortgage financing is unaffected because it is related to long-term rates.

However, Díaz specified that this rise in the reference rate does not exactly mean that loans are more expensive, since the effects of monetary policy are out of date and depend on market conditions.

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“If the market is abundant and liquid, the bank does not place money as it would like, there is competition, financial institutions are competing to place their loans and they are not necessarily going to shift all their increases towards the cost of credit,” he said.

However, he stated that the readjustment carried out by the BCRP represents an upward pressure that, however, would be affected by the slowdown in the market because the economic reactivation is still insufficient.

Faced with this, he indicated that to notice the impact of monetary policy, it must be constant, “since it normally takes between three and six months to take effect.” “If the rate continues to increase, its impact on the cost of credit will be much clearer,” he said.

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It is not symmetric

Finally, it should be remembered that the reference rate between April 2020 and June 2021 remained at 0.25% to boost the economy in the context of a pandemic. Under these conditions, according to Díaz, financing is much more accessible and competition dominates the market.

Faced with this, he stressed that the result is not symmetrical and that the contraction of the reference rate does not mean a decrease in the cost of credit.

“When there is more demand, it pushes the cost of credit a little higher. If the market condition is still low, the competition can increase the cost in this way ”, concluded the economist.

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BCRP supports savings banks to issue credit cards

BCRP official Adrián Armas was in favor of municipal savings banks issuing credit cards as long as they have the technical characteristics to provide the service.

“What we can comment on is that, in general, the position of the central bank In the past, on similar projects, competition has been welcomed, the opportunity for other financial entities such as savings banks to have the opportunity to provide these services, ”he said.

But nevertheless, He highlighted the importance of the role of the SBS to supervise that they “have all the technical elements to provide these services in an adequate manner.” And if so, “this function could be given to financial entities,” he pointed out.

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