He peruvian sun has established itself as one of the best performing currencies in Latin America, in a context where several currencies in the region have suffered significant depreciations, in line with the behavior of their economies, according to the LatAm Currencies Report, by Credicorp Capital.
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The Investment Bank indicated that, despite a slight loss in value close to 1.7%, the sun has shown greater stability compared to its peers, which have on average recorded drops of 7.5% so far this year.
According to the report, the good performance of the Peruvian currency is largely due to the solid fundamentals of the external sector. During the second quarter of 2024, Peru’s current account (named after the result of the country’s transactions with the rest of the world) presented a surplus equivalent to 2.3% of GDP. This positive result was 0.9 percentage points higher than the same period of the previous year.
The improvement has been driven by a record surplus in the trade balance (value of exports minus value of imports), which accumulated US$20.73 billion in the last 12 months, also supported by favorable terms of trade (ratio of export prices with imports) due to export prices at historical levels.
“Our economists expect these conditions to extend over the next year and anticipate a trade surplus close to US$22 billion in 2025,” argued Credicorp Capital.
Risks
However, the Investment Bank specified that there are factors that could limit further strengthening of the local currency. Among them is the gap between the interest rates of the BCR and the United States Federal Reserve (FED).
“Currently, the BCR policy rate is located at 5.25%, just above the effective federal funds rate in the United States, which leaves little room for greater appreciation of the sol in the short term,” they indicated.
Another aspect to follow closely is the administration of exchange swaps (financial derivative), a tool that the BCR has used to contain pressures on the currency. According to Credicorp Capital, currently, the balance of these instruments amounts to S/53,000 million. While this strategy has helped mitigate the currency’s depreciation, it could also limit a significant increase in its value in the future.
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