Peruvian currency gains ground thanks to rate hikes and trade winds By Reuters
© Reuters. FILE PHOTO: A money changer holds Peruvian Sol bills on a street in downtown Lima, Peru December 15, 2017. REUTERS / Mariana Bazo / File Photo
By Benjamin Mejias and Marco Aquino
LIMA (Reuters) – The Peruvian sol currency, which plunged last year due to political risk, has rebounded so far in 2022 and is expected to continue strengthening, analysts and traders say, as rates interest is rising and prices are skyrocketing.
The currency has risen more than 2% against the dollar this month, reaching its highest level since left-wing outsider Pedro Castillo became president of the world’s number one. 2 copper producer last July.
The sol hit an all-time high against the dollar last year and ended down more than 10%, one of the worst results in Latin America.
Today, despite the continued risk of potential political disruptions, its outlook has become more optimistic on a recent round of interest rate hikes, a weaker dollar, strong commodity prices and a better outlook for tax revenues. of the government.
“A structural factor is that there is a lot of influx of dollars from exports,” said Hugo Perea, chief economist of Peru for BBVA (MC 🙂 Research. “Monetary policy also appears to be moving rapidly towards levels of neutrality. “
Peru has raised its interest rate for six consecutive months, raising it to 3% last week in a cycle that is expected to continue as the central bank seeks to contain inflation. Higher rates encourage investment and savings.
“I think the main factor that would help the exchange rate is that the benchmark interest rate continues to rise,” said Asvim Asencios, currency trader at Renta4 SAB Peru.
Out of six analysts and traders Reuters spoke to, four predicted that the ground, currently at its seven-month high of 3.9 per dollar, would strengthen this year to reach 3.8 per dollar. One said it would weaken to 4.15 to the dollar. The sixth was on the fence.
Analysts said positive technical fundamentals outweighed political factors for now, but investors remained cautious.
Castillo, a relatively moderate within a more radical Marxist party, is fighting a fragmented Congress, ongoing mining protests and a formal investigation into allegations of corruption and influence peddling.
“This year we have regional elections and we could see more radical groups start to take over the political map of Peru. It would affect the ground, ”Perea said, adding:“ Institutional controls so far contain populist or radical outbursts ”.
Rising global copper prices could also offset political volatility, with a dollar injection of mining taxes expected in March.
“We saw mining companies selling (dollars) to practically until the last day of last year in an environment where the exchange rate seemed attractive,” said a forex trader at a local bank.
Another currency trader said non-mining companies “already have enough dollars in their balance sheets and portfolios.”
The sol hit an all-time low of 4.138 against the dollar in October.
Its rise began in December when local business demand for the dollar began to weaken, allowing the central bank to reduce its intervention in the market.
“What we’re seeing right now is a realignment of portfolios,” said Eduardo Jiménez, chief information officer at Lima-based consultancy Macroconsult.
“People recognize that with these fundamentals you cannot have an exchange rate of 4.0 soles per dollar. ”
Peru: Soil on the rise? https://tmsnrt.rs/3zM6U2g
Peru: Soil on the rise? (Interactive graphic) https://tmsnrt.rs/3qikbg1
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