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Peru Raises Dollar Reserve Requirements to Damp Sol Rally

Peru’s central bank increased reserve requirements for a second straight month to stem a rally in the sol.

The monetary authority increased the average reserve requirement for dollars by 1 percentage point effective Feb. 1, it said in an e-mailed statement yesterday. The increase is the steepest of six increases in the ratio since May.

Peru’s policy makers are expanding efforts to combat appreciation in Latin America’s best performing currency in the past year. Companies seeking dollar financing abroad, demand for the government’s bonds and record foreign direct investment have spurred inflows, leading the central bank to step up dollar purchases in the spot market. The Finance Ministry said this week it will buy $4 billion to offset inflows as investors from developed markets plow money into higher-yielding assets.

The latest measure aims to “soften the impact of capital inflows from abroad on the expansion of credit and appreciation in the local currency,” the statement said.

The amount of dollar reserves that lenders hold at the central bank rose to 41.2 percent last month from 39.2 percent in April, the central bank said.

The central bank increased to 25 percent from 20 percent the reserve ratio for banks’ foreign long-term loans and bonds that exceed 2.2 times effective equity, compared with a previous limit of 2.5 times, according to the statement.

The bank said it will lower reserve ratios for banks that increase lending and investment overseas to slow the expansion in dollar credit.

The sol has appreciated 0.6 percent this year and closed at 2.5375 on Jan. 14., the strongest level since October 1996.

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