Peru Stages Biggest Intervention in Five Months as Sol DropsJohn Quigley
Peru staged its biggest intervention to prop up the sol in five months as emerging-market currencies sank globally on the outlook for reduced stimulus in the U.S.
The central bank sold $440 million of greenbacks, according to its website. The sol was unchanged at 2.822 per dollar at the close of trading after earlier touching 2.8270, the lowest since Aug. 19., Datatec prices show.
Most emerging market currencies fell as the U.S. Federal Reserve said it will further scale back monthly asset purchases that have bolstered demand for higher-yielding assets.
“The fact the central bank sold a good amount of dollars means we’re not feeling the sell-off that much here, but other countries have been badly hit,” Antonio Diaz, a trader at Banco Internacional del Peru, said by phone from Lima. “There’s strong demand for dollars from foreign investors. It’s the repercussions from Fed tapering and poor economic data from China.”
The central bank sold a record $5.2 billion in the second half of 2013 including $600 million on Aug. 21 to weaken the greenback. The sol has lost 0.9 percent this year after dropping 8.9 percent in 2013, ending the currency’s four-year rally.
The bank didn’t sell any dollar-linked certificates of deposit today after offering 300 million soles of the securities.
Concern that emerging-market economies will be left exposed by a slowdown in China and a reduction in U.S. monetary stimulus fueled demand for the U.S. dollar and Treasuries as a haven. The Federal Open Market Committee said today it will cut purchases of treasury and mortgage debt for a second time, to $65 billion a month from $75 billion, matching forecasts in a Bloomberg News survey of economists on Jan. 10.
The yield on Peru’s benchmark 7.84 percent sol-denominated bonds due August 2020 rose one basis point, or 0.01 percentage point, to 5.73 percent, the highest since Sept. 5, according to data compiled by Bloomberg.
Foreign investors are selling sol bonds on the expectation of further declines in the currency, according to Walther Benavides, a trader at BBVA Banco Continental in Lima.
“Foreigners with sol exposure are selling bonds before the sol reaches the level of other countries’ depreciation,” Benavides said in an e-mailed response to questions. Local banks and pension funds are buying “cautiously because they think foreigners could continue selling while the Fed continues with its tapering.”