Peru: Peruvian sol continues to slide
July 9, 2015
The Peruvian sol (PEN) continues to lose value against the dollar. On 9 July, the sol traded at 3.18 PEN per USD, which was a sharp 14.6% weaker than on the same day last year. The sol has slipped 6.5% against the dollar so far this year and now stands at its weakest level relative to the greenback in over six years.
The depreciation of the sol in the past several months coincides with ongoing weakness in the Peruvian economy as the export sector decelerates and commodity prices decline. The slide also reflects markets’ expectation of a full normalization of monetary policy in the United States later this year and concerns over the spillover effects of the Greek debt crisis. These external factors are decreasing demand for emerging market assets and currencies, such as the Peruvian sol.
The Peruvian Central Bank has responded to the depreciation through repeated interventions in the foreign exchange market. The Bank sold more than USD 600 million in the second half of June, pushing its total for the year close to USD 5 billion. The Bank has also reduced local currency bank reserve requirements to counteract the high local demand for dollars and increased liquidity in domestic currency.
Author: Carl Kelly, Economist