Peru pensions change likely to boost Sol demand, says Velarde

Bloomberg

Peruvian legislation allowing workers to tap their pension savings to repay home loans may lead pension funds to sell dollar assets to meet the increased demand for soles, according to central bank President Julio Velarde.
The changes will add strength to the sol and hurt credit growth as outstanding mortgage loans decline, Velarde told reporters in Lima. About 65 percent of the pension funds’ assets are in dollars, he said.
Under the legislation approved this week in Congress, workers can withdraw as much as 25 percent of their pension savings for use as a down payment on a mortgage or to repay an existing home loan. As much as 15 billion soles ($4.5 billion) could be withdrawn from pension funds in the next 12 months, according to a preliminary estimate by the central bank. The final amount could be much smaller, depending on how the new rules are implemented, Velarde said.
“We’re aware there could be some pressure on the currency market,” Velarde said. “We have various mechanisms with which we can act,” he said without elaborating.
Outstanding mortgages totaled 38.4 billion soles in April, according to the central bank. Most mortgage holders are workers with pension savings, Velarde said.
Velarde said he’s open to serving a third five-year term as president of the central bank when his mandate expires in October and plans to meet with President-elect Pedro Pablo Kuczynski.