Peru Creating Currency Volatility by Changing Intervention
Peru’s central bank will make it more difficult for traders to predict currency movements by purchasing dollars when the sol is depreciating as well as when it is strengthening, bank President Julio Velarde said.
The bank will buy dollars each day at a price that will vary to ensure an “element of uncertainty,” Velarde told reporters in Lima.
Policy makers are seeking to make the currency movements less predictable as the sol’s appreciation and low volatility fuel growing demand for credit in dollars. Banco Central de Reserva del Peru has bought a record $10.5 billion this year to limit appreciation in the sol. It sold $676 million in May as the sol weakened.
“We’re buying fixed quantities to introduce more volatility because previously, the view of some agents was when depreciation started, the buying stopped,” Velarde said. “We won’t stop buying if the currency is weakening. We’ll see how that works.”
The central bank has bought dollars every day this month, in amounts ranging from $40 million to $100 million. It bought $80 million in the spot currency market today and paid an average 2.5967 soles per U.S. dollar.
The sol gained 0.1 percent to 2.5950 per U.S. dollar today, according to Deutsche Bank AG’s local unit. That is the sol’s strongest level since 1997, data from Peru’s financial regulator show. The sol has appreciated 5.3 percent in the past year, the best performance among major emerging-market currencies tracked by Bloomberg.
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