Bloomberg News

Peru’s Sol Falls to Three-Month Low as Banks Buy Dollar Reserves

March 01, 2013

Peru’s sol fell to its lowest level in three months as banks boosted dollar purchases to meet increased reserve requirements.

The sol slid 0.3 percent to 2.5960 per dollar at today’s close, the weakest since Nov. 20, according to data compiled by Bloomberg. The currency posted a 0.6 percent weekly decline.

Peru’s central bank raised dollar reserve requirements on Feb. 27 for a third time this year to slow credit expansion and weaken the sol. The increases, combined with the monetary authority’s $3.4 billion of U.S. currency purchases this year, are making lenders reluctant to bet against the greenback, according to Antonio Diaz, a trader at Banco Internacional del Peru.

“We know the central bank is there with measures, that it’s in the market when it has to be,” Diaz said in a telephone interview from Lima. “The ‘sell, sell, sell’ strategy has changed. Things are more balanced.”

The Finance Ministry has pledged to buy at least $4 billion this year to curb gains in the sol, which appreciated 5.7 percent in 2012, the fastest pace since 2009. Today’s drop extended the local currency’s slide in 2013 to 1.7 percent.

Copper, Peru’s top export, fell after a report indicated that manufacturing growth slowed in China, the world’s biggest industrial-metals user.

Celfin Outlook

The central bank, which hasn’t bought dollars since Feb. 25, will probably stay out of the foreign-exchange market next week because of global market “jitters,” according to Hedmond Rios, an economist at Celfin Capital in Santiago. The sol will probably trade at about 2.6 during March before resuming its gains, Rios wrote yesterday in an e-mailed report to clients.

The yield on the government’s sol bond due in August 2020 fell three basis points, or 0.03 percentage point, to 3.73 percent, according to data compiled by Bloomberg. The price increased 0.23 centimo to 126.34 centimos per sol.

Peruvian consumer prices surprised economists by dropping 0.09 percent in February, the first decrease in three months, the government’s statistics agency reported today. The median forecast of 12 analysts surveyed by Bloomberg was for a 0.18 percent increase.

To contact the reporter on this story: John Quigley in Lima at jquigley8@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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