Feb. 19 (Bloomberg) -- Peru’s sol touched the lowest level in two weeks after the government said it’s ready to boost dollar purchases to weaken Latin America’s best-performing currency of the past year.
The sol dropped 0.2 percent to 2.5820 per U.S. dollar at today’s close, extending its decline this year to 1.2 percent, according to prices compiled by Bloomberg. It earlier fell to 2.5850, the weakest intraday level since Feb. 1.
Finance Minister Miguel Castilla said yesterday the government may expand a plan to sell soles to buy $4 billion in the foreign exchange market. The sol advanced 5.4 percent last year, the fastest pace since 2009, even after the central bank bought a record $13.9 billion to offset inflows amid increased demand for the government’s local currency bonds.
The authorities are “trying to remove the market’s one-sided bets” against the dollar, said Alejandro Cuadrado, the head of Latin American currency strategy at Banco Bilbao Vizcaya Argentaria SA in New York. “The more they can keep investors on the sidelines, the more effective the policy can be.”
The sol’s 3.9 percent gain in the past year is the strongest among the six most-traded Latin American currencies tracked by Bloomberg.
Most of the dollars flowing into Peru’s $200 billion economy stem from long-term investment projects and financing, and the government is more concerned about short-term flows causing “accelerated appreciation” in the sol, Castilla told reporters yesterday.
The finance ministry will use $1.8 billion of the dollars it buys to prepay multilateral loans, $1 billion to service debt and $1.2 billion to boost the government’s contingency fund, he said.
Castilla said the ministry decided against issuing bonds to finance debt servicing this year and will draw on tax revenue instead. The government doesn’t plan to buy back dollar-denominated bonds because prices are too high, he said.
The central bank said on its website it bought $10 million today. It’s bought $3.3 billion this year, boosting Peru’s international reserves to a record $67.6 billion.
The yield on Peru’s benchmark 7.84 percent sol-denominated bond due August 2020 declined two basis points, or 0.02 percentage point, to 3.75 percent at 2:30 p.m. in Lima, according to prices compiled by Bloomberg. The price climbed 0.11 centimo to 126.34 centimos per sol.
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