Banking Credit, Policy Interest Rate and Reserve Requirements in Peru

This paper evaluates the relevance of the "bank lending channel" of monetary policy transmission in Peru with disaggregated monthly data of the Peruvian banks balance sheets from January 2003 to December 2011. We study two policy instruments used during the inflation targeting regime: the short-term interest rate or policy rate and the reserve requirements on banks deposits. In a Bernanke-Blinder model where the monetary authority sets the interest rate instead of a monetary aggregate, the increases in both policy instruments have a negative impact on economic activity and bank loans. Using dynamic panel data techniques, we find that the short-term interest rate and the reserve requirements have a negative impact on the growth rate of bank loans.