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Economy | July 15, 2011 [ 9:14 ]

Peru’s Central Bank buys most dollars in year to slow sol gains

By John Quigley
Bloomberg.com

Peru’s central bank made its biggest dollar purchase in a year as local companies selling dollars to pay worker bonuses kept the sol at its highest level since 2008.

The central bank bought $276 million today, the most since July 2010, paying an average 2.7415 soles per dollar, it said on its website.

The sol strengthened less than 0.1 percent to 2.7410 per U.S. dollar at today’s close, from 2.7415 yesterday, according to Deutsche Bank’s local unit.

“Companies have until tomorrow to pay mid-year bonuses and those that have revenue in dollars have to sell them to pay bonuses,” said Roberto Flores, an economist at Lima-based brokerage Inteligo SAB. “The expiry of dollar forward contracts has been pressuring the sol in the last few days.”

Demand for soles also rose this week as Peruvian exporters led by mining companies paid local income taxes, causing the central bank to step up dollar purchases in the spot market. The bank bought $78 million yesterday and $79 million July 12.

The purchases helped reduce the net dollar holdings of Peruvian banks to $430 million on July 12 from $556 million a day earlier, according to the central bank.

Still, the banks’ dollar surplus will keep pressure on the sol, making Peruvian companies less competitive in the international market by making their goods more expensive in dollar terms, Peruvian exporter group Adex said in an e-mailed statement.

The central bank should take “special” measures to halt further appreciation in the sol, Adex said.

The yield on the nation’s benchmark 7.84 percent sol- denominated bond due August 2020 was little changed at 6.298 percent, according to prices compiled by Bloomberg.

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