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Peru Raises Reserve Mandate to Tame Growth, Sol Volatility

Peru’s central bank will increase reserve requirements for lenders next month as it seeks to curb volatility in the sol and cool an economy that expanded 9.2 percent in May.

The reserve mandate for banks will rise to 8 percent of their lending portfolios in August from 7 percent, Banco Central de Reserva del Peru said in an e-mailed statement today. The share of this that lenders must put in accounts at the central bank will rise to 2.5 percent from 2 percent.

Banco Central also introduced a new 12 percent marginal reserve mandate for local-currency deposits. The marginal requirement on foreign-currency deposits will rise to 45 percent from 35 percent, and banks will be required to hold funds equivalent to 50 percent of borrowings abroad maturing in less than two years, up from 40 percent.

The changes are aimed at ensuring the “orderly” development of liquidity and credit, Banco Central said today. Rising demand for the local currency prompted the bank to allow the country’s private pension funds to invest more of their assets overseas last week.

Today’s adjustments follow increased reserve mandates announced June 21 which, coupled with three quarter-point interest rate increases since early May, will help to “tighten financial conditions and also to discourage short-term capital inflows which have been pressuring the sol to appreciate,” Goldman Sachs Group Inc. economist Alberto Ramos said in an e-mailed statement today.

The central bank bought $645 million in the foreign- exchange market last week, including a record $494 million on July 14 after the sol rose to a 23-month high.

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