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Peru’s Sol Falls to Three-Month Low After Central Bank Measures

Peru’s sol closed at its weakest level in three months after dollar purchases by the central bank and pension funds diminished local supply of the greenback.

The sol fell 0.3 percent to 2.5890 per U.S. dollar, the lowest close since Nov. 23, according to prices compiled by Bloomberg.

Peru has bought $3.3 billion this year to stem gains in the local currency, which according to the country’s financial regulator touched a 16-year high of 2.5390 on Jan. 14. Policy makers relaxed the limit on private pension fund investments overseas Feb. 15 and have raised banks’ dollar reserve requirements twice this year to cool sol appreciation.

“The central bank has made significant purchases so the market has been left with relatively few dollars,” said Mario Guerrero, an economist at Scotiabank Peru SA in Lima. “There’s a need for dollars because banks have to meet the reserve requirements and pension funds have a greater space to invest overseas.”

The monetary authority said on its website it didn’t buy dollars today.

Policy makers will probably continue to raise reserve requirements and ease the pensions limit this year to tame the sol, BBVA Banco Continental said in an e-mailed report to clients yesterday.

Dollar inflows will increase on mining investment and demand from Peruvian companies for dollar-based financing from abroad, spurring a 4.7 percent advance in the sol to 2.45 per dollar in 2013, the Lima-based lender said.

The yield on Peru’s benchmark 7.84 percent sol-denominated bond due August 2020 rose two basis points, or 0.02 percentage point, to 3.76 percent at 3:22 p.m. in Lima, according to prices compiled by Bloomberg. The price fell 0.13 centimo to 126.21 centimos per sol.

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