Peru Central Bank Chief Velarde Agrees to Stay Another Term

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Peru’s central bank President Julio Velarde agreed to stay in the post for another five-year term, according to a person familiar with the situation, in a decision that should bring some comfort to investors worried over the new administration.

Velarde, 69, has been in the role since 2006, overseeing a long period of relatively growth and low inflation. He held multiple conversations with new Finance Minister Pedro Francke about extending his tenure and made the decision Monday afternoon, according to the person who isn’t authorized to speak publicly on the matter.

His continuity at the central bank should help preserve a sense of stability at a time of acute market volatility due to questions over President Pedro Castillo’s policies. The nation’s currency has been the worst performer in emerging markets since Castillo took office on July 28, and weakened to a record low of 4.11 per dollar on Monday.

“It’s another step in the right direction and should calm investors’ nerves further,” said Omotunde Lawal, the London-based head of emerging-market corporate debt at Barings LLC, who is underweight Peru. “The budget will give us more clues, but with Velarde staying it’s certainly a good omen.”

The central bank declined to comment.

Read More: Twelve Days In Office and Crisis Swamps Peru’s Leftist President

As well as Velarde, the bank’s other six board members still need to be named in the next few weeks. The government appoints four of them, including Velarde, and congress will name the other three. Francke said in an interview with a local TV that former central bank president Oscar Dancourt is being considered for a seat on the board.

Castillo surprised the market with his cabinet picks which came prominently from the far left elements of his alliance including for the prime minister and foreign minister roles. Francke, who was the preferred choice for finance minister, sought assurances from Castillo before accepting the role.

There are still questions about whether the central bank will be able to do much about expansionary fiscal policies and what the exact mix of the new board would look like, according to Esther Law, a senior investment manager for EM debt at Amundi Ltd. in London.

Peru’s euro-denominated bonds due in 2026 gained 0.1 cent to 111.43 cents at 12:15 p.m. in London.

“While there may be some relief rally on the back of Velarde’s news, local bond positioning still feels heavy,” she said. “I prefer to wait for some stabilization before re-engaging.”

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