UPDATE 2-Peru cenbank places $400 mln in repos as dlr liquidity drops

Fri Feb 22, 2013 4:41pm EST

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LIMA Feb 22 (Reuters) - Peru's central bank placed $400 million in repurchase agreements in two auctions on Friday to boost dollar liquidity as banks struggle to meet tightened reserve rules aimed at curbing the local sol currency's historic gains.

The move came after dollars largely evaporated from the spot market and the overnight rate - the 24-hour lending rate between banks, had risen to nearly 10 percent on Friday, up from 1.98 percent at the start of the year.

The repurchase agreements were auctioned in three-day instruments - half at a 9 percent interest rate and the rest at 8 percent.

The monetary authority has raised reserve requirements at least six times since May in a bid to soften the impacts of heavy capital inflows following stimulus measures abroad that helped the local sol currency gain 5.72 percent against the dollar last year.

The monetary authority has also lifted the foreign investment ceiling on the country's pension funds several times to spur demand for dollars, and last year bought a record $13.9 billion in the local spot market.

The central bank has bought about $3.4 billion so far this year.

Despite low liquidity in the local spot market, it intervened with a $10 million purchase on Friday, as the sol picked up on good economic news in developed markets.

Analysts said Friday's intervention was driven by the central bank's ongoing concern about the sol's gains. Exporters say they risk losing market share overseas.

The sol has weakened 1.18 percent so far this year, but is still traded around its strongest levels in more than 16 years.

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