The Peruvian Sol continues to fall against the dollar reaching levels not seen since 2006. Via El Comercio Peru:
The exchange raterose on Fridayto a maximum ofmore than nine yearsfor purchases ofdollarstocompaniesand institutional investors due to increased expectationsofa rise in the USkey interest ratein December andfearsabout the health ofChina’s economy.
Thedollar rose0.21% to S/3.363units, matching the level of 7April 2006.Meanwhile, theparallel exchange ratewasS/3.365.
To mitigatethedecline,theCentralReserve Bank (BCR) sold US$70 million, at an average exchange rateof3.3609units.
During2015, official salestotal US$7.569 billion, while the local currencyrecordeda drop of12.85%.
“Instabilityand weaknessofChina’s economy, the approaching endof the year andthe odds fortheUSFederalReserveto raise rates, continue to generatedemand for dollarsfromcorporate and institutional,” said one agent.
With the Peruvian Sol declining in value, the Central Bank of Peru is keeping the current rate of 3.25% in place for now, mainly to avoid further weakening of the currency.
The rapid descent of the Peruvian Sol is affecting consumers in Peru. While the US is seeing official rates of inflation below the Fed target of 2%, Peru is paying a lot more for imported products including appliances because of the decline in the national currency the Peruvian Sol.
As I first began to think about this post I imagined that the line “Why the Peruvian economy matters to the world,” would be considered by some in high finance circles to be somewhat comedic relief, maybe like a night out at the improv comedy club for Keynesian economists and bankers.
It’s not to say that Peru’s economy is so large or anything like that, being just 51st in nominal GDP worldwide, (source) but rather that its run to glory is so typical of what has happened to little countries all over the world since 2008. As the “free” Federal Reserve dollars sloshed around the planet searching for anywhere to grow faster, faster, those same dollars found a happy home in many emerging and smaller nations. Peru by itself is just one of the many, but the sum total of debt between all those “little” emerging nations is a significant sum that could easily cripple the banking system.
With emerging markets showing signs of stress after the end of QE, will Peru also see foreign money leaving the economy? With around 50% of all loans denominated in dollars, a sudden exit could leave Peru vulnerable. Continue reading Will the Hot Money Leave Peru?→
Chris Martenson of Peak Prosperity (peakprosperity.com) recently visited Lima to present a seminar with well known financial guru Robert Kiyosaki (Rich Dad, Poor Dad) entitled “The new global scenarios that will define the Peru of the next 20 years”, organized by the University San Martín de Porres and Bu$iness Insiders.
Today, the Peruvian Sol fell to S./3 to the US dollar at least for bank customers. In what has been an almost daily event, the Central Bank has been selling dollars to stop the fall of the Sol.
From El Comercio (Via Bing Translator)*
The price of the dollar is appreciating in the foreign exchange market and your (the) quote already reaches the S/.3,00 on the banks of the city since this morning. On the other hand, the Bolsa Valores de Lima (BVL) (Lima Stock Exchange) record positive indices at the opening of business.