Peru Steps Up Dollar Purchases as Sol Rises to 16-Year HighJohn Quigley
Peru’s central bank bought the most dollars in 11 weeks as foreign direct investment keeps the sol trading at a 16-year high.
The monetary authority said on its website it bought $100 million in the spot market and paid an average 2.5455 soles per U.S. dollar. It last purchased that much on Oct. 22.
Record investment from abroad and demand for the country’s bonds has spurred demand for soles, leading the central bank to buy $13.9 billion in the spot market last year to curb appreciation. The bank increased lenders’ reserve requirements for a fifth time last year on Dec. 30 to limit money supply.
Policy makers were probably “expecting some reaction to the reserve requirement change but the market didn’t care much about that so they had to step up intervention,” said Pedro Tuesta, a Washington-based Latin America economist at 4Cast Inc. “It’s very hard for the central bank. There’s not much more they can do. They’ll keep buying dollars.”
The sol appreciated 0.1 percent 2.5455 per U.S. dollar at today’s close, according to Deutsche Bank AG’s local unit. That’s the strongest level since October 1996, data from Peru’s financial regulator show.
Foreign direct investment in Peru probably rose 35 percent to $11.1 billion last year from 2011, the central bank said in a Dec. 14 report.
Mining companies needing soles to pay local taxes in the first quarter are buying local currency now on the expectation appreciation will continue, said Gonzalo Navarro, the head trader at Banco Santander SA in Lima, in an e-mailed note to clients.
The yield on the nation’s benchmark 7.84 percent sol-denominated bond due August 2020 increased one basis point, or 0.01 percentage point, to 3.89 percent, according to prices compiled by Bloomberg. The price fell 0.07 centimo to 125.62 centimos per sol.