Monday, January 24, 2011

Peru to intervene to weaken its currency

An interesting report in La Republica right here, with your author's translation of a couple of the key passages below:
Ministry of Economy Will Help Central Bank to Stop the Fall of the Dollar (in local currency) Using Restrictive Fiscal Policy Measures
Faced with the drastic fall in the greenback last week, Vice-Minister of Economy, Luis Miguel Castilla, announces that the return of dollar purchases will be evaluated.

After last Friday when the dollar registered its biggest drop against the Peruvian Sol (PEN) in 32 months to close at S/2.772 to the dollar, the Ministry of Economy and Finances (MEF) announced that it will help the Peru Central Bank (BCRP) to stop the local downward pressure on the US currency via a clear restrictiv fiscal policy.


Luis Miguel Castilla, Vice Minister of Economy, explained the the best help that the MEF could give the BCR to avoid excessive appreciation in the local currency and in turn the risk of economic overheating is with a countercyclical fiscal policy.


.......


Castilla noted that in 2010 the MEF bought dollars to help the BCR calm volatility in the Nuevo Sol and didn't rule out that these actions would be taken again, for which the MEF has been coordinating with the BCR to work on the best form of intervention.