Standard & Poor's Ratings Services affirmed its long-term foreign currency rating of 'BBB+' and long-term local currency rating of 'A-' on the Republic of Peru.
“The outlook on these ratings is stable. We also affirmed the 'A-2' short-term local and foreign currency ratings on Peru. The transfer and convertibility assessment of 'A' remains unchanged,” the agency stated in a press release.
The affirmation "considers our revised assessment on Peru's trend growth prospects" and "monetary policy flexibility."
S&P expects Peru's growth to annually average 3.7% or 2.8% in per capita terms from 2015 - 2018.
In this framework, Peruvian per capita GDP is expected to be about US$6,200 in 2015, it forecasted.
BCR
"Peru's monetary institutions have gained credibility over the years," it pointed out.
The Central Reserve Bank (BCR) has contained inflation, "with one of the lowest inflation rates in the region." A managed floating exchange rate regime also supports monetary flexibility, S&P added.
This has supported lower levels of dollarization and development of domestic capital markets.
Recent efforts by the BCR have facilitated a further decline in dollarization, particularly borrowing in Dollars, which was 34% of total credit to the private sector in July, down from 42% as of year-end 2014 and 44% as of year-end 2013.
Credit strength
Peru's key credit strength is its fiscal position, which includes its policy performance and flexibility and its low level of debt. The government took advantage of recent years of favorable commodity prices by making structural changes to fiscal policy, improving its Fiscal Responsibility Law to measure structural balances, boosting its Fiscal Stabilization Fund and smoothing its debt profile.
It generated an average general government surplus of almost 1% from 2010-2014.
"The local currency rating on Peru is one notch higher than the foreign currency rating, reflecting our view of the credibility of its monetary policy, its floating exchange-rate regime, and the size of its capital markets," it expressed.
Outlook
"The stable outlook reflects our view that Peru remains well placed to conduct moderate countercyclical policy given net general government debt levels of less than 10% of GDP," the agency affirmed.
"We also believe Peru can manage a widening of its current account deficit and some increase in external debt despite potential local and global market volatility ahead of the 2016 presidential elections and a more challenging global backdrop," it added.
Improved government effectiveness, along with more investment in the country's physical infrastructure and continued cautious macroeconomic policy, could boost investor confidence.
"We could raise the ratings under such a scenario," it finally stated.
(END) MVB