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Peru’s Central Bank Buys Most Dollars in Five Months to Tame Sol

Jan. 14 (Bloomberg) -- Peru’s central bank bought the most dollars since August to stem a sol rally as tax payments and accelerating economic growth spurred demand for local currency.

Banco Central de Reserva del Peru bought $350 million in the spot market today, the most since Aug. 16, and said on its website it paid an average 2.5379 soles per U.S. dollar.

The central bank bought a record $13.9 billion last year and raised reserve requirements five times as investors moved money into South America’s fastest-growing economy. The annual pace of economic activity unexpectedly accelerated to 6.8 percent in November, led by construction, the national statistics agency reported today.

“The rationale for inflows coming into the country, more investors interested in diversifying into Peru, is still in place,” Alejandro Cuadrado, the head of Latin American currency strategy at Banco Bilbao Vizcaya Argentaria SA, said in a phone interview from New York. “Resistance from the central bank” won’t reverse gains in the currency though further increases in reserve requirements are possible.

The sol appreciated 0.3 percent to 2.5375 per U.S. dollar today, according to data compiled by Bloomberg. That is the currency’s strongest closing level since October 1996, data from Peru’s financial regulator show.

Companies bought local currency before an annual deadline for income tax payments while banks reduced their dollar holdings after meeting higher reserve requirements announced Dec. 30, Gonzalo Navarro, the head trader at the local unit of Banco Santander SA, said in an e-mailed note to clients.

The yield on Peru’s benchmark 6.85 percent sol-denominated bond due in February 2042 dropped 12 basis points, or 0.12 percentage point, to 4.87 percent at 2:46 p.m. in Lima, according to data compiled by Bloomberg. The price rose 2.13 centimos to 130.31 centimos per sol.

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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