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Peru Sol Extends Biggest Quarterly Drop Since ‘08; Yields Rise

Peru’s sol declined, extending its biggest quarterly drop since 2008, after the central bank increased reserve requirements to prevent dollar inflows from fueling gains in the local currency.

The sol depreciated 0.1 percent to 2.59 per U.S. dollar at 12:45 p.m. in Lima, extending its drop over the past three months to 1.4 percent, according to prices from Datatec. The local market will be closed for a holiday tomorrow and March 29.

Banco Central de Reserva del Peru said today the reserve ratio will rise by 0.25 percentage point for lenders who have less than 50 percent of their U.S. currency holdings at the central bank. The move, effective April 1, will probably curb bets against the dollar in the sol forwards market and damp appetite for short-maturity sol bonds, according to Alejandro Cuadrado, the head of Latin America currency strategy at Banco Bilbao Vizcaya Argentaria SA.

The measure “is directed at maintaining the dollar squeeze in the market,” Cuadrado said by phone from New York. “We’re already seeing some investors growing tired of this, and the continued pounding that we see is going to bring some additional effectiveness to this measure.”

Four increases in dollar reserve requirements this year have led the sol to depreciate the most since the fourth quarter of 2008, when the collapse of Lehman Brothers Holdings Inc. sunk demand for emerging-market assets. The currency appreciated 5.7 percent in 2012.

The yield on Peru’s sol bond due in May 2015 rose two basis points, or 0.02 percentage point, to 1.60 percent today, according to data compiled by Bloomberg. The yield has climbed 0.09 percentage point this month and is down 1.14 percentage points this quarter.

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