Peru Sol Rises to 3-Year High on Bet Central Bank Won’t Cut Rate

Peru’s sol rose to its strongest level in more than three years as traders bet quickening domestic growth and moves by European nations to stem the debt crisis have reduced the possibility of the central bank lowering its benchmark rate this year.

The sol strengthened 0.1 percent to 2.7020 per U.S. dollar at today’s close, from 2.7055 on Nov. 4. The currency earlier touched 2.7019, its strongest level since April 2008.

Greek Prime Minister George Papandreou agreed yesterday to step aside to make way for a unity government as the country seeks to prevent the collapse of its economy. Global stocks, which rallied throughout October, slumped on Oct. 31 and Nov. 1 after Papandreou announced his desire to hold a referendum on a European Union aid package, spurring concern the deal would unravel.

“There are still problems in Europe but fears the financial system was going to buckle have eased a little,” said Gonzalo Navarro, head trader at Banco Santander in Lima. “It was thought Peru’s central bank had space to lower its interest rate before the end of this year, but after the recent inflation and GDP data, it doesn’t have much an incentive to do so.”

The Andean nation’s economic growth has gathered pace after consumer and business confidence rose following the June 5 presidential election. The economy expanded 7.5 percent in August, after growing 6.5 percent in July and 5.3 percent in June. Consumer prices rose more quickly than economists forecast last month as food and clothing costs climbed.

Central bank policy makers will keep the benchmark rate at 4.25 percent for a sixth straight month when they meet Nov. 10, according to all 10 economists surveyed by Bloomberg.

The central bank bought $2 million in the foreign exchange market today, and paid an average 2.7040 soles per dollar, to slow gains in the currency.

The yield on the nation’s benchmark 7.84 percent sol- denominated bond due August 2020 rose one basis point, or 0.01 percentage point, to 5.72 percent, according to prices compiled by Bloomberg.

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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