Peru Watch: AFP returns, anti-money laundering efforts, interest rate decision

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Friday, January 12, 2018

Peru's four private pension fund management companies, or AFPs as they are known, reported average returns of 12.7% for 2017.

The riskiest of the three individual funds under management, known as Fondo 3, performed the best, generating returns of 14.2%, state news agency Andina reported.

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Some 80% of Fondo 3 funds are invested in equity instruments, with the balance in fixed income instruments.

Peru is mulling giving AFPs more choice in terms of where they can invest the savings of affiliates.

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Lawmakers approved a bill which establishes that certain sales transactions involving real estate, vehicles, aircraft or vessels must be conducted through the financial system.

Specifically, transactions involving sums of more than 3 UITs (tax units, about US$4,000) fall under the new legislation.

The bill, which modifies existing rules, is part of government efforts to combat money laundering and tax evasion, Andina said.

"Heavy use of cash causes inefficiencies and facilitates tax evasion, corruption, crime and money laundering," banking watchdog SBS was quoted as saying. "It also creates implied risks such as counterfeiting and robbery."

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Peru's central bank cut the country's key interest rate to 3.0% from 3.25%, citing factors including falling inflation and a lower-than-expected increase in investment in the fourth quarter.

Inflation in Peru was 1.36% in 2017 - the lowest annual rate since 2009.

The central bank forecasts that inflation will remain under 2.0% over the first half of this year, within its target range of 1-3%.

The IMF forecast last year that GDP growth for 2017 will come in at 2.7% and will reach 3.8% in 2018. The central bank forecasts 2.5% growth for 2017, down from 3.9% in 2016.

Earlier this week rating agency Fitch said it may revise down its 2018 and 2019 growth forecasts from the 4.0% and 3.4%, respectively, that it predicted in early December, citing political headwinds in the country.