One would expect that a country that has had nine presidents in the past ten years, that just concluded its third consecutive election decided by less than one percent of the vote, and is preparing to hand power to a president-elect who has spent years fighting corruption charges in court, to be in economic freefall. By most conventional measures, this is a country on the brink. And yet, Peru’s economy has not collapsed; inflation closed 2025 at 1.5%, the sol remains one of the most stable currencies in Latin America, and international credit agencies have upgraded–not downgraded–the country’s outlook. The reason has little to do with its politicians, and everything to do with the one institution they have never managed to control.
Political dysfunction has become almost as common as ceviche in Peru’s lexicon. With a weak Congress and even weaker president, the constitutional allowance for cross-impeachment–where both Congress and the president can remove the other from power with relative ease–has resulted in nearly every president since the country’s return to democracy in 2000 to have been accused of corruption in an effort to remove them from office. Additionally, the unequal distribution of wealth and income, compounded by social and geographic disparities, further contributes to political instability and the informality of large portions of the economy, highlighting the weak capacity of the state. These factors, taken into consideration alongside rising public safety concerns, heightened criminal activity, and high levels of government corruption, lead to low trust in public institutions and imply severe challenges to effective governance. The latest elections, marked by severe logistical deficiencies and delays, brought about a second-round victory for Keiko Fujimori (daughter of former ousted President Alberto Fujimori), who eked out her opponent Roberto Sánchez by less than 1% of the vote. The results, however, are still under scrutiny with final tallies likely to be announced mid July.
Despite the grim political realities of the country, Peru is considered one of the most stable and promising economies in Latin America, in large part due to the independence of the central bank (BCRP). Led by Julio Velarde for the past 20 years, the institution has proven to be a bastion of the Peruvian economy, particularly considering what it offers citizens and investors alike: price stability, institutional credibility, an anchor during political crises, and vital financial defenses.
The BCRP has managed to keep inflation low, typically between the 1-3% range, over a large part of the past three decades. Compared to the hyperinflation experienced in Peru in the 80s and 90s, the prudent management of monetary policy elevated the value of the sol and offered a sort of certainty to investors regarding the value of both their money and investments. Inflation in 2025 closed at 1.5%, the lowest rate across Latin America and below that of the United States, compounded by economic growth of 3.4% in the same year, exceeding initial expectations and closing above the regional average.
The BCRP’s institutional credibility, marked by its political independence, offer investors yet another sign of confidence in the institution; as the BCRP’s autonomy is constitutionally protected, directors cannot be easily removed by politicians, creating a barrier between monetary policy and the economic whims of those in office. In an interview with Argentine radio station La Voz, Valerde stated, “Isolating the central bank from political pressures is crucial. It truly ensures better outcomes in the long run.” The BCRP is also constitutionally prohibited from financing government spending, which had caused the hyperinflation of previous decades. This separation between the BCRP and the government also allows for the continuity of the BCRP governor, which in turn marks policy continuity; as a result, investor fears regarding volatile interest rates and ever-changing economic policies are assuaged.
During Peru’s political crises–of which it suffers many, and often–the BCRP has served as an anchor, signaling a stabilizing force amid high levels of political uncertainty. Rumors of Velarde’s retirement this year have raised some concerns among investors, who have over the past two decades associated Peru’s economic credibility with the institution and its leadership. The governor is set to end his fourth 5-year term in July. Regardless, Velarde’s policies during his tenure have allowed Peru to accumulate very high levels of foreign exchange reserves, which reach nearly $100 billion, and are an important financial defense that allows the currency to remain stable, helping Peru weather external shocks and domestic political crises.
As Keiko Fujimori prepares to become Peru’s tenth president in ten years, eyes will not only be on her, but also on Julio Velarde, to determine what the country’s next couple of years may look like.
About the author:
Arianna Kohan
The views, positions, and conclusions expressed in Cefeidas Notebook belong exclusively to the individual authors and do not necessarily reflect the official institutional stance of Cefeidas Group.