Peru’s Sol Falls to 10-Week Low After Measures to Ease Gains

Peru’s sol fell to its lowest level in 10 weeks after policy makers took steps to slow capital inflows that pushed the currency to a 15-year high last month.

The sol depreciated 0.3 percent to 2.6130 per U.S. dollar at today’s close, according to Deutsche Bank AG’s local unit. That is the weakest level since Aug. 30. The currency is unchanged from a week ago.

The central bank increased reserve requirements for soles and dollars for a third straight month Oct. 30 and is considering relaxing limits on pension funds’ investments abroad. The Superintendency of Banking, Insurance and Pension Fund Administrators said Oct. 19 it will consult lenders on a proposal to tighten restrictions on banks’ dollar sales to reduce bets against the greenback.

“We’ve seen more volatility in local banks’ dollar positions over the past weeks following the adjustments by the authorities,” said Alejandro Cuadrado, the head of Latin American currency strategy at Banco Bilbao Vizcaya Argentaria in New York.

Peruvian companies have turned to international bond markets and foreign banks for financing amid record low borrowing costs in the U.S. Foreign direct investment and demand for Peruvian government bonds have added to inflows.

The sol touched 2.5770 on Oct. 22, the strongest since December 1996, according to data from the banking regulator.

The central bank has bought $12.5 billion this year to stem sol appreciation. The monetary authority purchased $20 million in the spot market today and said on its website it paid an average 2.6120 soles per dollar.

Risk Aversion

Increased risk aversion in global markets amid concern U.S. and Chinese growth may falter has also curtailed demand for the sol, Adrian Armas, research director at the central bank, said on a conference call with reporters today.

The yield on Peru’s benchmark 7.84 percent sol-denominated bond due in August 2020 rose one basis point, or 0.01 percentage point, to 4.30 percent at 2:31 p.m. in Lima, according to prices compiled by Bloomberg. The price fell 0.08 centimo to 122.97 centimos per sol.

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