OBC has revised its base rate upwards by 50 basis points to 9.50% and BPLR by 50 basis points to 13.75%. Dena Bank, IOB and Indian Bank have hiked their base rates by 50 basis points.

Nupur Mitra, ED, IOB said, “The demand for credit is unlikely to be impacted by higher rates and we will be taking a call on whether to hike the BPLR, which is currently at 13.5%. However, our margins are likely to suffer as a result and could drop to 3% from 3.27%.” With the latest round of loan rate hikes, the base rates of almost all banks are now above 9%. When the base rate was first introduced in July last year, most banks had announced a rate of around 8%. HDFC Home Loan

“This is line with the interest rates in the economy, which have hardened due to an increase in policy rates, inflation and liquidity in the domestic market,” HDFC said in a release. HDFC has increased its retail prime lending rate (RPLR) to which its Adjustable rate home loans (ARHL) is benchmarked, by 25 basis points. The RPLR for loans up to Rs 30 lakh will be 9.75%, for loans between Rs 30 lakh and Rs 75 lakh will be 10% and for loans above that it will be 10.5%.

Meanwhile, Bank of Baroda has realigned deposit rates reducing them for some buckets while increasing them for others.

On Monday, Punjab National Bank had upped both its base rate and benchmark prime lending rate by 50 basis points each to 9.5%and 13% respectively.

It was the first bank to hike loan rates after the Reserve Bank of India (RBI) hiked key policy rates by 25 basis points each on January 25, 2011, during its review of the monetary policy.

Said KR Kamath, CMD, PNB, ” We believe that credit offtake will not be impacted by the increase in the loan rates. We have increased deposit rates because we need to sustain both the growth in deposit, currently at 20% and maintain credit growth at 25%.”

Kamath added that the hike was taken in response to the Reserve Bank of India’s (RBI) wishes that credit and deposit growth be aligned.

Allahabad Bank increased its BPLR by 25 basis points to 13.50% and its base rate by 50 basis point to 9.50%. United Bank of India(UBI) too upped its base rate by 50 basis points to 9.45% and BPLR by 50 bps to 13.50%.

With wholesale inflation ruling at 8.5% for the better part of 2010, the central bank increased policy rates six times between March and December 2010.

Banks followed suit increasing both loan and deposit rates with some lenders such as ICICI Bank upping rates twice in the span of a month. The latest hike by banks was on December 31, 2010, when five banks including State Bank of India (SBI) upped loan rates. While SBI raised its base rate by 40 basis points to 8%, ICICI Bank hiked its base rate and benchmark prime lending rate (BPLR) by 50 basis points to 8.25% and 25 basis points to 17%, respectively.

The Monetary Policy Committee left the key lending rate at a record low of 6 percent, the Nairobi-based Central Bank of Kenya said in an e-mailed statement today. The decision was expected by all four economists surveyed by Bloomberg.

“Previous cuts haven’t had much effect in bringing down base rates at commercial banks,” James Mose, a research analyst with CFC Stanbic Financial Services Ltd., said in an interview from Nairobi, the Kenyan capital. “So we didn’t expect another cut today.”

Kenya’s central bank has reduced rates by 2.5 percentage points since March 2009 as it sought to encourage commercial lenders to increase loans and help the economy recover from the global crisis. Bank lending, led by demand from Kenyan households, advanced 6 percent to 878.8 billion shillings ($11 billion) in the third quarter, according to the central bank.

Growth in East Africa’s biggest economy accelerated to an annual 5.4 percent in the second quarter from 4.8 percent in the previous three-month period, after rain ended a drought and boosted farming output and hydropower generation.

The economy may grow 6 percent in 2011, compared with an estimated 5 percent this year and 2.6 percent in 2009, Kenyan President Mwai Kibaki said last month.

Ratings Upgrade

Kenya’s improved economic outlook was one of the reasons that Standard & Poor’s cited for raising its sovereign rating for the country by one step to B+, four levels below investment grade, on Nov. 19.

There is “increased confidence in the economy,” led by growth in agriculture, construction, manufacturing and finance, the central bank said today.

Kenyan lenders have failed to match previous reductions in the key lending rate. Bank’s average lending rate was 14 percent in September, down from 14.2 percent a month earlier, according to central bank statistics. Banks have scope to reduce the cost of borrowing further after deposits grew, Central Bank Governor Njuguna Ndung’u said last month.

Interest charges fell the most at mid-sized banks, where maturity lengths increased, and many lenders “continue to operate in an environment of high returns not commensurate with risk,” the central bank said today.

Higher Profits

Equity Bank Ltd., Kenya’s biggest by market value, last month reported a 52 percent increase in nine-month profit driven by higher interest income from loans. Barclays Bank of Kenya Ltd., the second-largest lender, reported on Nov. 19 that net income between January and September surged 20 percent.

Growth in lending hasn’t triggered inflation, which remained below the government’s target of 5 percent over the past eight months.

The government’s borrowing program is not expected to put pressure on interest rates, while inflation is at an “appropriate” level, the central bank said today.

The central bank also raised its economic growth forecast for fiscal 2010 to 3.3 percent, following a two-day policy board meeting ending today.

Policy makers predicted an expansion of 3.3 percent in the year ending March 31 compared with the 2.1 percent estimated in October, the central bank said in a statement today in Tokyo.

The positive view by the BOJ matched the government’s forecast for a 3.1 percent expansion. The government predicted growth would accelerate as overseas demand for Japanese products increased.

The central bank decided to maintain the size of its asset purchase fund and the cheap credit program, which were kept unchanged at 5 trillion yen (60.52 billion U.S. dollars) and 30 trillion yen (363.15 billion U.S. dollars) respectively.

BOJ Governor Masaaki Shirakawa and his policy board also predict that consumer prices will decrease 0.3 percent this fiscal year compared with their initial forecast for a 0.4 percent decline three months earlier.

The BOJ predicts inflation will pick up to 0.3 percent the following year, higher than its October prediction of 0.1 percent.

“The recovery trend of the Japanese economy is becoming increasingly evident,” Seiji Shiraishi, chief economist at HSBC Securities in Tokyo. “I think there is still about a 30 percent chance for another policy easing around March if the yen strengthens and political pressure remains,” he said.

The Chinese economy has been awash in liquidity due to government stimulus money and generous lending by state banks. Chinese officials are now concerned about an overheated economy and the inflationary pressures that come with that.

The fact that China’s economy has remained robust during the global recession gives Chinese officials leeway to rein in liquidity. The country has been growing at an average of 10 percent a year, and the strength of the export industry remains high despite a dip in late 2008, when the financial crisis first roiled the United States and then other parts of the world.

But investment in large capital-intensive projects has also been fueling the economic engine and driving up prices.

Analysts have been saying for months that they expect China to raise interest rates throughout 2011.

Earlier this month, the government reported that the consumer price index rose 5.1 percent in November, compared with the same period a year ago. It was the largest increase in three years. Since the spring, the year-on-year increase in the index has been above 3 percent, despite the government’s desire to keep the average increase below 3 percent for the entire year.

Chinese leaders are aware of the political dangers of high inflation. Xinhua, the state news agency, reported on Dec. 17 that Li Keqiang, the vice premier, said at a conference of government officials that “more efforts should be provided to stabilize prices next year.” He added that over the next five years, growth rates should be defined “reasonably.” Mr. Li is expected to take over as prime minister in 2012 from Wen Jiabao, who now oversees the economy.

Officials have signaled throughout the month that moves will be taken to better control spending across the country. China announced on Dec. 3 that it would tighten monetary policy next year, shifting it from “relatively loose to prudent.” That was a clear sign that Chinese officials were intensely concerned about inflation.

On Dec. 15, the Chinese Academy of Social Sciences, a prominent research organization based in Beijing, reported that high inflation and housing prices had contributed to a deepening sense of popular disaffection. The findings of the report were based on a survey of 4,143 people.

Commodity prices were the main concern of urban residents, followed by health care and housing prices, according to the findings, which were reported by Xinhua. Rural residents in this year’s survey said health care was their top concern, followed by commodity prices.

Job satisfaction among those surveyed was at its lowest in four years, according to the academy.

Also on Dec. 15, the central bank said that satisfaction among people with the current level of prices had dropped to an 11-year low. The bank’s findings were based on a survey of 20,000 people during the fourth quarter in 50 cities across China.

The real estate market is another concern. The property market in China has been booming. Rising property prices, along with the government stimulus money and loose bank lending, have spurred new developments across the country. Even long-term residents on the tropical southern island of Hainan have had to grapple with soaring real estate prices from outsiders coming in to buy up land.

Some analysts say this growth has resulted in a gargantuan bubble in the real estate market, while others argue that the capacity will be put to good use.

A record $560 billion of residential property was sold in 2009, an increase of 80 percent over 2008, according to government statistics.

In October, the government increased its benchmark lending rate, in what appeared to be an effort to tamp down real estate speculation.

Until now, low wages have helped to hold down inflation and keep China’s export industry competitive. But those wages in the context of soaring real estate prices mean that migrant workers from the interior of China are becoming less tolerant of poor work conditions on the coasts, where many of China’s export manufacturing factories are located. Many workers are now choosing to stay closer to home in the interior provinces, and some companies are moving their manufacturing centers inland.

Turkiye Is Bankasi AS and Turkiye Garanti Bankasi, the two largest listed lender in Turkey, the plan to give the local bond market as the central bank reduces interest rates. Based in Istanbul Akbank TAS, the third largest, and 20 percent owned by Citigroup Inc., one billion lire (658,000,000 US Dollar) of 178-day licenses sold Dec. 13, the first offering in the fixed income its kind by a turkish retail bank.

Yields on two-year government bonds fell to 7.25 percent yesterday, falling below the bond rates in India for the first time in the tightest level since at least 2006 on the Polish debt, according to data compiled by Bloomberg. turkish yields fell, inflation fell to 7.3 percent in November, compared to 70 percent a decade ago.

“There is more room for yields will fall, as investors bet that inflation” comes out very low in February and March, “said okte Isik, a trader Finans Invest in Istanbul. “Bonds issued by banks are all linked to this environment of low interest rates. Others will follow, because it is a way of financing at low cost.”

Sponsors revealed three days ago, which applied to regulators to sell up to 3 billion pounds in local currency bonds with different maturities. Isbank applied last week to spend up to 5 billion pounds of debt.

Rarity
Akbank bonds were at a 7.28 percent return, compared with 6.5 percent for June 2011 Turkish lira bonds, data compiled by Bloomberg prices show. Demand for debt sold by Turkish banks will be enhanced by their rarity value, “said Simon Quijano-Evans, chief economist for emerging Europe, Middle East and Africa at Credit Agricole SA Chevreux in Vienna.

“Investors are willing to offer everything that a pickup in yield to buy bonds,” Quijano-Evans said.

Since Prime Minister Recep Tayyip Erdogan took power in 2003, the gross domestic product at constant prices grew by 34 percent, including contractions in 2008 and 2009, according to the National Institute of Statistics. The expansion requires banks including UniCredit SpA of Italy, National Bank of Greece SA, London-based HSBC Holdings Plc and France’s BNP Paribas SA, the investment banking sector.

New rules
The financial system of the country’s regulatory body for the industry has given permission bond sale will start on 1 October Lira, the publication of a set of rules on its website that the banks to issue debt up to a limit of a formula takes into account the base has authorized its deposits, shares, goods and capital. may be the maximum output of 51 billion lire set, extended, Tevfik Bilgin said the head regulator on December 8.

Akbank and other Turkish banks receiving funds from the bond market, after Moody’s Investors Service, Fitch Ratings and the year the credit ratings Turkey last year Standard & Poor’s. Fitch raised its outlook on its BB + rating, the highest non-investment grade, which uses a “positive” from “stable” on Nov. 24, citing the strength of the Turkish economy and the improvement of public finances.

Rate cut
The central bank reduced the benchmark lending rate by 50 basis points to a record level of 6.5 per cent yesterday, after it has been fixed for a year to stem capital inflows from abroad to expand the deficit currents. The bank gave no further information on rates.

An increase in Turkey, investment grade in the general election next year, set for June, also in a decline in bond yields, “said G’rol Ozer, head of fixed income trading and the Istanbul-based Deniz Bank AS. Moody’s and S & P rates Turkey, two levels below investment grade.

“We think that Turkey can be updated by the end of next year,” Ozer said. “It ‘s difficult to define a plan for bond yields to predict now.” Yields on government securities of two years, is likely to fall as low as 6 percent to slow inflation to 5.5 percent, the estimate of the Central Bank by the end of next year, he said.

Mortgages Lag
Bank lending rose 13.7 per cent this year and surpassing the expansion of the sector, and in 2011 will be a year to showcase the industry, “said Bilgin November 12. The amount of outstanding mortgage debt corresponds to Turkey 5 percent of GDP, according to the Central Bank. This compares with the EU average of 49.8 percent from 2008, compiled the latest figures of the European Mortgage Federation.

holdings of foreign investors turkish domestic debt accounted for 12.3 percent of the total exhibition in October from 8.9 percent in January, the data on the website of the Ministry of Finance.

denominated domestic investors are likely to be the pillar of the corporate bond market in pounds, which have less liquid market for the turkish government bonds and not so much economically, said Kieran Curtis, managing more than 2,000,000,000 US Dollar in emerging market bonds contribute Aviva Investors in London.

“The results do not seem that attractive, liquidity is not that fantastic and the spreads are not going well,” said Curtis, adding that its funds “light” is underweight bonds turkish, because “real yields are not as interesting and there are other interesting coins to invest in ”

The government is selling bonds for less than a percentage of debt maturing in 2011 than this year, with the rate decreases to 88 percent or 135 billion lire, from 90 percent in 2010, said Minister of Finance October 28.

“The Treasury should not pull up a little more space for private sector bonds,” Quijano-Evans said. “Once, in the long term, bonds, banks can offer to get the prize being a bit ‘more attractive than the national debt.”

“Inflation is beginning to worry us,” Chairman Sergey Ignatiev told reporters yesterday in Moscow. The central bank will “primarily” use its interest-rate policy to control rising prices, he said.

Policy makers are weighing the first rate increase since 2008 after inflation accelerated to the fastest in 11 months in November. The IMF urged Russia to focus monetary policy “squarely on reducing inflation” as the Washington-based fund raised its forecast for prices to grow 8.5 percent from about 6 percent.

“While the sharp increase in inflation in recent months has been driven largely by a drought-related spike in food prices, non-food prices have also been increasing steadily since July,” Juha Kahkonen, chief of the IMF’s Russia mission, said in a statement today. “Accordingly, an increase in policy interest rates would seem warranted to prevent the second-round effects of food-price increases from taking hold.”

Ruble Climbs
The ruble climbed to its strongest level in almost a month against the dollar, surging 0.5 percent to 30.91 per greenback, the strongest since Nov. 13, by the 5 p.m. close in Moscow, and gained versus the euro as investors shunned European assets for the prospect of higher Russian returns.

The price of oil, Russia’s chief export earner, also gained today by as much as 1.3 percent to $89.42 a barrel in New York.

Higher interest rates would bolster the ruble’s appeal as a target for the carry trade, where investors borrow funds in countries where interest rates are lower and then invest the money where the returns are higher.

The central bank lowered its main refinancing rate 14 times between April 2009 and May this year and has since kept the rate at 7.75 percent for six months as policy makers sought to keep a lid on prices without damping the economy’s recovery from a 7.9 percent slump last year.

The inflation rate may reach 8.4 percent this year after higher food costs and a weaker ruble fanned price-growth, Ignatiev said yesterday. The worst drought in at least half a century triggered crop losses and drove up food costs after price growth slowed to a record-low 5.5 percent in July.

Maintain Policy
While Bank Rossii said Nov. 26 that it was committed to “monetary stimulus,” the bank’s statement omitted a previous pledge to maintain that policy “for the coming months.”

“Russia’s central bank is hawkish on rates amid inflation pressure, admitting refinancing rates could be hiked in the first quarter,” VTB Capital analysts led by Dmitry Dmitriev in Moscow said yesterday in a note to clients. “We also stress the mounting prospect of a rate hike in early 2011.”

Bank Rossii may lift the benchmark rate by a quarter-point by the end of March, according to the median estimate of 19 economists surveyed by Bloomberg. Traders are pricing in 0.58 percentage points of increases over the next three months, forward-rate agreements show.

The Economy Ministry estimates gross domestic product will grow 3.8 percent this year, less than the 4 percent initially forecast by the government. GDP expanded an annual 2.7 percent in the third quarter, the slowest pace this year.

Chinese Growth
China’s economy expanded three times faster, at 9.6 percent last quarter, and India’s grew an annual 8.9 percent in the three months through September. The Indian economy is likely to expand 8.5 percent in the fiscal year through March, the most in three years, Prime Minister Manmohan Singh said Nov. 20.

In addition to considering rate increases, Bank Rossii may combat inflation by increasing reserve requirements for banks if capital inflows resume, Ignatiev said today. Net capital outflow was about $9 billion last month, raising the total for the first 11 months of the year to $29 billion, Ignatiev said.

Russia’s emerging-market peers, including Brazil and China, have recently tightened policy to head off inflationary pressure as domestic demand expands.

Brazil’s central bank last week raised reserve and capital requirements to slow consumer lending. China has increased reserve requirements five times this year, with the latest taking effect Nov. 29.

More Active
Turkey’s central bank said Nov. 29 that it may make “more active” use of reserve requirements to stem foreign currency inflows. Peru’s central bank raised its benchmark lending rate five times this year and increased reserve requirements to prevent inflation from exceeding the government’s target range.

Russia’s key rate is lower than Brazil’s benchmark Selic overnight rate, which policy makers increased three times this year to 10.75 percent. India’s central bank raised rates for a sixth time this year on Nov. 2, boosting the repurchase rate by a quarter-point to 6.25 percent and the reverse repurchase rate by a similar margin to 5.25 percent.

In Russia, bank lending growth is set to accelerate next year, expanding 20 percent in nominal terms, Ignatiev said. Loans have increased about 13 percent this year, he said.

- Dollar hits fresh two-month high against the euro as risk trends primed for relaxation.
- Euro sinks on the board as fears bond Crisis Spread, Portugal, Spain and Italy.
- Show the mixed flows of funds from the British pound European Council Curbed Stumble confidence.
- Surprisingly strong Australian dollar, after a marked cooling in 3Q GDP Figures.
- Canadian dollar sinks after a disappointing third-quarter GDP reading this to find data.
- Do not just Japanese Yen Futures disappointed by the production of work data.

Fresh Dollar hits two-month high against the euro risks tend to be created specially for the rest
Very strength of the dollar remains the main weakness of the parties to it – but the appreciation of the euro indirectly, we saw the standardization of the strength of a currency that seems to be devoid of all derivatives of appreciation. Therefore, the assessment process taking into account the base would not be surprised to see that the EURUSD close below 1.30 for the first time since Sept. 14 and the test of 1.55 GBPUSD should leave us amazed at the rear of the fall on the other hand, the provision of three weeks, the dollar is very helpful to them in currency. Outside the circle of the euro has had a significant base. First up we have significant growth intraday, playing a loan of $ Swiss franc – the currency’s safe haven. Then a meeting to reflect the currency’s trading partners is the largest U.S. – Canadian dollar. Perhaps the most remarkable. But progress on the ‘high yield’ money, this thirst risk also did not differ in appearance rude AUDUSD decline for the fourth consecutive major to close the fund and NZDUSD down 0.96 on the third day to strengthen the focus. Focusing on 0.74.

But in general the code is important to realize that the dollar has stopped making Mark as an important step in the progress of continuous torque – Improves Activities of aggressive currency, Europe seems to be winded up in assessing the strength of the true foundation of U.S. currency is easy to work through a process of elimination to know in advance the point. What is lacking for power. For the economic potential. expected growth rate of unemployment failure should contain about 9 percent and the number spotty GDP to meet about the potential return, US benchmark lending rate to fight to see the move. officially at 0.25 percent, marking the end of 2012, despite the state of it was destroyed by heavenly safe for policies that fueled the growth in finance, but the dollar continues to fall again in the role of safety moving forward. Page of confidence, investors should be dissolved ‘struts to purchase and stimulate the economy the government would top the economy is not important when it comes to shelter operators panic FX liquidity and market stability. and support from the government. These are dollars in circulation. This is why the bill should keep an eye on the commercial S & P 500 are defined as those measures, a simple confidence of investors waiting times and consistency of the index 1175 is to hold the driver. The potential importance of the dollar. This may be a delay because of falling EURUSD AUDUSD NZDUSD to be held at 0.74 and 1.03 USDCAD failed to whether the collapse of the potential risks do not fit, climbing dollar is likely to soon be the end of that S & P Opening 500 in sign of confidence in the currency is a second life.

Focusing on general trends of risk is important for interpretation. Reacting to all the possible effects on their innate drive element of the financial problems most experienced European efforts to reduce the growth of China. Growing geopolitical uncertainty in South Asia and even the idea. Put the crowd on the same idea. In contrast, the risk of macroeconomic activity is influenced much less as feeds that do not correspond to a larger size. That said, these trends are needed to monitor the long-term direction. Having said that, up to five months the index of consumer confidence is always skepticism does not fit with the bigger picture. It can signal the production of tomorrow will be a close match ISM.

Euro plunges Forum crisis fears spread on bonds, Portugal, Spain and Italy
The euro has seen a direct relationship with the dollar of the funds flowing from one place to another a few weeks ago, these But Tuesday’s performance was the pressure behind the sale of a shared currency hit another team. The euro fell against the Japanese yen, Swiss franc and British pound sterling through the program to cover the fundamental frequency and risk. This weakness is deeply rooted in the financial situation deteriorated rapidly, especially in Europe, according to S & P credit rating agency cut the tendency of Portugal, however, development threaten to spread high-yield bonds recorded 10 years of Spanish and pain seen in the credit default swaps of the Italian economy, these are much larger.

Mixed sterling performance as flows of funds from the European trip Curbed confidence
It is difficult to assess the performance of each pound. The performance of the currency has been distorted by fluctuations in the spectacular Euro GBPUSD said remained relatively stable throughout the day, even when there is a movement for EUR / USD the GBP interesting additional consideration compared with a decline of confidence. consumers and factory activity in the morning. Keep an eye on growth trends deficit.

Surprisingly strong Australian dollar after a sharp cooling in 3Q GDP Figures
How much will it affect the interests of the Australian dollar than it is difficult to establish. But the currency has remained relatively stable in the face of growth. Weakest in almost two years, with data this morning 3Q GDP domestic product to decrease in production activity and the growing current account deficit shows the appetite for risk has significant influence. But this works both ways.

Canadian dollar plunges After the disappointing third-quarter GDP reading this to find data
Despite the potential risk to the general decline of the traditional line of products used. currency pair Canadian dollar has helped to drive a little emotional. Rough seas. With the expected growth rate. The growth and interest we see lower prices for Canadian GDP figures in the third quarter fell more than expected 1.0 percent growth rate. Public spending on housing and exports to compensate for business investment.

Japanese Yen futures not just disappointed by the production of employment data
Discussion about the potential risks of expansion, it should be noted that the Japanese yen, you can Posted rally significantly against the U.S. dollar Tuesday – but this couple did not call a clear risk. The increase in strength after an impressive jump in unemployment in Japan and to industrial activity. This is a battle of the catalyst with the Federal Reserve purchased 6,800,000,000 U.S. Dollar treasures from around the Bank of Japan will respond to the way

Why is the PBoC raising its benchmark rate now? Analysts like Qing Wang of Morgan Stanley, say the announcement comes just ahead of key Q3 GDP and CPI data out this Thursday, both of which are likely to be higher than expected. Wang says the move reflects the government’s effort to manage inflation expectations, and to demonstrate its confidence in the strength of China’s underlying economy.

But Wang says this isn’t the start of something bigger. “Given the uncertainty of the global economy and interest rate policies of major central banks (G3: Fed, ECB and BOJ), I don’t think this is the beginning of a tightening cycle.”

Nick Chamie of RBC Capital Markets, disagrees, arguing that the rate hike was a long time coming. RBC forecasts the PBoC will continue to raise rates up to 50 basis points in the next 12 months.

The G20 meeting takes place this Friday and Saturday and this is a point of discussion that central bankers are hoping will come to fruition. The global rebalancing has everything to do with bringing trade in balance and it is believed that the Chinese Yuan fixed to the dollar at an artifically low value encourages China exports at the expense of US exports. This not only causes a large disparity in trade flows but also leads to China being overly exposed to US bonds. China’s apprehension is a sharp increase would deflate their economy and that their companies are already running on thin profit margins (or so they say). As a result, it could send them into a recession.

The seven-member board, led by bank President Julio Velarde, kept the bank’s reference rate at 3 percent, surprising all except one of 16 economists surveyed by Bloomberg. Most analysts had predicted the central bank would raise rates for a sixth consecutive meeting.

“They’ve held the rate to control the inflow of dollars to the currency market” said Gonzalo Navarro, head trader at Santander in Lima. “With inflation under control, the central bank can start to worry about the currency.”

The Peruvian central bank said in a statement accompanying the decision that the move was based on economic data, including a 0.03 percent decline in consumer prices last month.

The bank’s move yesterday comes as central bankers in emerging nations warn that interest rates that exceed those in developed markets are attracting capital inflows, leaving them vulnerable to exchange rate appreciation and overheating.

Peruvian policy makers have increased bank reserve requirements and introduced new securities in efforts to limit gains in the sol, which has risen 3.6 percent this year against the dollar.

The five interest rate increases earlier this year coupled with greater fiscal restraint by the government will continue to damp inflation pressures and slow economic growth to more sustainable levels, said Mario Guerrero, an economist at Scotiabank Peru in Lima.

Economic Growth

Gross domestic product grew 9.1 percent in July from a year earlier, lower than analysts forecast for 10.4 percent and down from 11.9 percent in June.

“A good part of inflation this year has come from supply- related factors, such as weather, harvest, fuel or wheat” said Guerrero, the only analyst surveyed by Bloomberg to correctly predict today’s decision. “The trajectory of annual inflation will slow in the remaining months” of this year.

The bank introduced new securities this week designed to discourage investors from selling dollars in the local foreign- exchange market and to temper demand for the sol. Policy makers are concerned that currency volatility poses a threat to borrowers who have taken out loans in dollars. A stronger currency also makes Peruvian exports more expensive in dollar terms, potentially cutting into profits for local companies.

Last week’s increase in deposit requirements for a fourth time since June signaled that policy makers are uneasy with both surging credit and higher interest rates that draw more foreign capital into the country and increase volatility in the sol, said Daniel Volberg, an economist at Morgan Stanley in New York.

Currency Purchases

The central bank purchased $8.74 billion in the first nine months of this year to temper the currency’s gains.

Investors have plowed a record $49.4 billion into emerging- market stock funds this year and $39.5 billion into bond funds, EPFR Global data show.

“The prospects of sustained low interest rates in the advanced countries have contributed to a surge in capital flows to some emerging markets, putting upward pressures on exchange rates, creating overheating pressures, and carrying risks of increased vulnerabilities and reversals” finance officials from the Group of 24, which includes Brazil, Mexico and Nigeria, said in a statement after talks in Washington yesterday.

Peru’s economy is no longer in danger of overheating after the bank raised the benchmark rate 1.75 percentage points this year, Velarde said Sept. 17.

August Indicators

Growth continues to abate, according to economic indicators for August. Cement demand advanced more slowly than in July while fishing, mining, and agricultural activity contracted, according to the National Statistics Institute.

The pace of annual growth may have slowed to 8.7 percent in the third quarter from 10.1 in the second quarter, according to the central bank.

The government is winding down investment under its stimulus package, which will lower the risk of demand-led pressures and send consumer prices higher, BBVA Banco Continental said Oct. 1. The annual inflation rate last month rose to 2.37 percent from 2.31 percent a month earlier, near the middle of the bank’s 1 percent to 3 percent target range.

Rising inflows as well as increased company and government spending propelled Peru to the fastest GDP growth since 2008 in the second quarter. Concern that the expansion may be unsustainable prompted the bank to increase its reference rate in August and September by a half-point, up from a quarter-point at its three previous meetings.