Peru: Peruvian sol stabilizes but remains weak
October 8, 2015
The Peruvian sol (PEN) stabilized in the past month after tumbling at a fairly consistent pace for more than a year and pushing beyond the 3.30 PEN per USD mark in late August. Despite the recent stabilization, the sol continues to trade at historically weak levels. On 8 October, the sol traded at 3.22 PEN per USD, which was unchanged over the same day in September but represented a 10.9% depreciation compared to the same day last year. The sol has slipped 7.8% against the dollar so far this year.
The depreciation of the sol in previous months coincides with ongoing weakness in the Peruvian economy as the export sector decelerates and commodity prices hover at multi-year lows. However, the recent stabilization is presumably due in part to the Peruvian Central Bank surprisingly raising interest rates at is 10 September meeting. This move, coupled with the Bank’s ongoing interventions in the foreign exchange market and markets pushing out expectations for when the U.S. Federal reserve will raise its rates, is seen as increasing demand for Peruvian currency.
Author: Carl Kelly, Economist