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Peru Sol Falls to Seven-Week Low on Reserve Rules: Lima Mover

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Jan. 31 (Bloomberg) -- Peru’s sol fell to its lowest level in seven weeks after the central bank increased reserve requirements to stem a four-year rally in the currency.

The sol dropped 0.4 percent to 2.5755 per U.S. dollar at today’s close, the weakest since Dec. 11, according to data compiled by Bloomberg. The currency extended its monthly decline to 0.9 percent, the first since May.

Policy makers raised the average reserve requirement for dollars by 1 percentage point effective tomorrow, the steepest of six increases since May, the monetary authority said in an e-mailed statement.

“The central bank has made explicit its concern about the forces pressuring the currency to appreciate,” Hedmond Rios, an economist at Celfin Capital SA, said in a phone interview from Santiago. “The sol has suffered a strong speculative attack.”

The sol has advanced 4.4 percent in the past year, the strongest gain among six major Latin American dollar counterparts tracked by Bloomberg. Peru’s currency closed at 2.5390 on Jan. 14, the strongest level since October 1996, data from the country’s financial regulator show.

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.

Dollar Purchases

The sol, which has advanced 19 percent in the past four years, has depreciated 1.5 percent since Jan. 14 after the central bank boosted daily dollar purchases.

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

The yield on the nation’s benchmark 7.84 percent sol-denominated bond due in August 2020 fell five basis points, or 0.05 percentage point, to 3.84 percent at 2:51 p.m. in Lima, according to data compiled by Bloomberg. The price climbed 0.33 centimo to 125.78 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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