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Peru Sol Declines on Central Bank Purchases; Bond Yields Drop

Peru’s sol fell the most in two weeks as the central bank purchased dollars to slow appreciation after foreign direct investment boosted inflows.

The sol depreciated 0.2 percent to 2.5820 per dollar at today’s close, the steepest decline since March 27, according to prices from Datatec.

The central bank said on its website it sold local currency to buy $100 million today, extending its purchases this week to $510 million. Pressure on the currency to appreciate will continue because of mining investment and inflows from local companies selling dollar bonds overseas, said Felipe Hernandez, an analyst at Royal Bank of Scotland Group Plc.

“The outlook for foreign direct investment is very strong,” Hernandez said by phone from Stamford, Connecticut. The central bank’s purchases are designed to “slow down the pace of appreciation to allow the economy to adjust to the stronger” sol, he said.

The central bank increased in a March 22 report its forecast for foreign direct investment in 2013 to $10.8 billion from a projection of $8.2 billion three months earlier. Investment rose to a record $12 billion in 2012.

Local banks pared their net dollar holdings to $91 million on April 9 from $367 million a week earlier, according to Banco Central de Reserva del Peru data compiled by Bloomberg.

The yield on the nation’s benchmark 7.84 percent sol bond due in August 2020 declined one basis point, or 0.01 percentage point, to 3.74 percent, according to data compiled by Bloomberg. The price climbed 0.06 centimo to 125.90 centimos per sol.

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