Capital flows, monetary policy, and exchange rate intervention in Peru

This article describes the main characteristics of sterilized interventions in the foreign exchange market and the use of unconventional policy instruments by the Central Reserve Bank of Peru, with the aim of preventing excessive credit booms or busts in the context of a partially dollarized financial system. This monetary policy framework is based on a risk-management approach, with the benchmark interest rate serving as the primary instrument within an inflation-targeting regime. This framework helped mitigate the impact of the recent global crisis on the Peruvian economy and made it possible to sustain growth with low inflation, thereby avoiding the distortions typically associated with massive inflows of foreign capital. (Audio: Department of Economic Publications)