Peru’s central bank is ready to sell dollars in the local market should the pace of the sol’s decline worsen, bank President Julio Velarde said.
The central bank can also purchase sol bonds if higher yields “contaminate” domestic lending rates, though policy makers don’t expect that to happen, Velarde told reporters in Lima today.
Peru’s sol dropped 1.7 percent today to its lowest since May 2011 and yields on benchmark bonds surged after the Federal Reserve said yesterday it may start easing a stimulus program that has kept U.S. yields low and buoyed emerging-market assets. The sol weakened less than the Colombian and Chilean peso as investors know the central bank is ready to sell dollars if there’s “too much nervousness” in the market, Velarde said. The Colombian peso slid 2.2 percent, while the Chilean peso dropped 2.8 percent.
“If there is a panic situation or a very strong appreciation in the dollar, obviously we would not only sell re-adjustable certificates of deposit but also sell in the spot market,” Velarde said. “Why haven’t we done it, it’s because we haven’t seen that sense of panic.”
Peru’s central bank doesn’t expect the jump in yields on the country bonds to push up the cost of credit locally or merit intervention.
The yield on Peru’s benchmark 7.84 percent sol-denominated bond due August 2020 rose 53 basis points, or 0.53 percentage point, to 5.48 percent today, according to prices compiled by Bloomberg. That’s the highest since March 27, 2012.
Peru’s pension fund managers may purchase bonds “if they see attractive opportunities,” Velarde said. “The government doesn’t have a pressing need to go the market so it doesn’t have to worry about these rates.”
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