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Peru Central Bank May Allow Stronger Sol, Banco de Credito Says

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Sept. 20 (Bloomberg) -- Peru’s sol is likely to strengthen as much as 4 percent by the end of next year as the central bank tolerates greater appreciation amid rising foreign investment, according to Banco de Credito del Peru.

The sol may rally to 2.55 per U.S. dollar this year and trade stronger than 2.50 next year on rising foreign direct investment and demand for the country’s bonds, said Juan Odar, an economist at Banco de Credito, the nation’s largest lender.

Policy makers seek to create more volatility in the spot market by buying dollars when the sol depreciates as well as when it appreciates, central bank President Julio Velarde said Sept. 14. The bank, which has bought a record $10.6 billion in the spot market this year to stem gains in the sol, will no longer attempt to halt the appreciation and will allow larger swings in the currency in an effort to damp local demand for credit in dollars, Odar said in a phone interview from Lima.

“People who borrow in dollars should assume a bit of the currency risk because up to now it seems they didn’t take that into account,” he said. “Greater volatility implies greater caution on the part of whoever’s taking credit in dollars.”

The sol was little changed at 2.6030 per U.S. dollar at 1:12 p.m. in Lima, according to Deutsche Bank AG’s local unit.

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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