EFTA01379435.pdf

22 December 2017 EM Currency Handbook 2018. Still Fuel in the Tank Peru The Central Bank of Peru (BCRP) is responsible for intercambiario" published around 13:30 local time. FX managing monetary and exchange rate policies. options market is yet to be developed. Monetary policy is carried out under an inflation- targeting regime. The inflation target is 2% +1- 1% and USD/PEN spot end REEK applies to inflation (Lima CPI) throughout the year —not 4.0 so only for year-end inflation. The main instrument of monetary policy is the BCRP's overnight reference 37 interest rate. In addition, the bank also targets interest 90 rates on overnight repo loans and interest rates paid on 34 overnight deposits made by financial sector institutions 3.1 in the BCRP. 2.6 The exchange rate operates in a floating regime with active BCRP intervention. Exchange rate policy is 2.6 110 aimed at limiting extreme volatility and maintaining a Jan.00 Jan02 Jaos04 Jar.06 Jae06 Jan.10 Ja12 Jan-14 Jn•16 high level of international reserves, without defending . .1),.::VPE/1 nvr —REEn.)nmt*, tnci any specific FX level. As in many other countries, limiting volatility and maintaining international reserves Scutt Dame.Bat Bitemborg!two,LP 1 are important to moderate the impact from external shocks, but they are critical in Peru because of the still- 3M and I2A4 USDIPEN NDF implied yield high level of financial dollarization among corporates and pension funds. FX intervention is done through three mechanisms: a) Direct purchases/sales in the spot market; b) Auctions of USD-linked CD's (BCRP sells USD via CDRs or buys USD via CDLs); and c) Auctions of FX Swaps in the forward market (BCRP sells USD in the spot at the fixing rate, then receives OIS PEN rate and pays a fixed USD rate). Although there are no capital controls, the monetary authority often manages the reserve requirements on local deposits of nonresidents in order PEllImInt144 Vold —FEN 12m Inwied Yoald to limit foreign portfolio investment in local markets. ate DaitnieSat libsinbav Ahoy:*LP In 2016, Peru actively unwound its heavy short USD position in derivatives and started to rebuild its external asserts Outstanding swaps fell to PEN1.1 billion 1M USDJPEN implied volatility and realized volatility ($330 million) in December 2016 from PEN26.4 billion 36 ($7.7 billion) in December 2015 and USD-linked CD's 30 dropped to PEN805 million (S234 million) from PEN7.1 billion ($2.3 billion) during the same period. 25 Moreover, after having lost $12.3 billion in international 20 reserves in 2013-2015, the BCRP accumulated 15 $2 billion in reserves since it turned a net purchaser of US dollars in the spot market last June. to The daily market turnover is approximately USD350m, 0 with an average ticket size of USD10=20mn and a Joni() an-i2 Jan-14 Jon-le bid/ask spread of around 20bp. Onshore forward —PEN 1m Implied Vol —PEN ImReized Vol market is settled in PEN and it is mainly concentrated in I m instruments. The offshore NDF market posts a Sow* Pasch* S. abonewpMax*LP daily trading average of USD300mn. While contracts exist for tenors between lm and 12m, liquidity is concentrated in 1m (with bid/ask spread of 30bp in yield for a USD20mn ticket). The offshore forwards settle T+2 and the fixing rate is the "promedio Deutsche Bank Securities Inc. Page 107 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0076910 CONFIDENTIAL SDNY_GM_00223094 EFTA01379435