September 4, 2012 / 6:50 PM / in 5 years

Peru's central bank buys $80 mln, sol ends bidding weaker

LIMA, Sept 4 (Reuters) - The central bank bought $80 million in the local spot market on Tuesday to prevent gains of the sol currency, which finished bidding 0.12 percent weaker at 2.610 per dollar.

The sol has been trading at its strongest levels in 15 years despite frequent interventions, bidding 2.607 per dollar at market’s close yesterday.

So far this year the central bank has bought $10 billion as the sol has strengthened 3.3 percent against the dollar. The bank’s total international reserves have swollen to almost $60 billion.

Last week the central bank raised reserve requirements to offset the sol’s appreciation and to slow the country’s rapid credit expansion as stimulus measures put in place by the world’s major central banks have boosted trading.

Abrupt fluctuations in the sol have long concerned officials because about half of Peru’s bank deposits are held in dollars and many people and companies earn money in one currency but owe debts in the other.

Traders consulted by Reuters said high foreign liquidity, local sol purchases to pay seasonal taxes and higher than expected inflation have all contributed to the sol’s recent gains.

Year-over-year inflation in August was 3.53 percent, higher than July’s 3.28 percent and the central bank’s target range of 1-3 percent.

The sol has been bidding at 2.606 per dollar in informal markets.

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