PEN: Pencilling In Sol Weakness In 2009

The Peruvian nuevo sol should remain one of the better performing majors in Latin America in the short term, largely thanks to the central bank's eagerness to defend the currency using its vast (but depleting) foreign reserve arsenal. As a result of this policy, the sol has surrendered just 4.0% against the greenback year-to-date, which compares more than favourably to the Brazilian real's 29.1% losses and 26.1% depreciation for the Chilean peso. Going forward, we believe that the authorities will continue to smooth currency moves, at least until inflationary pressures start to give way, although scope for appreciation appears subdued. As such, we expect the sol to remain stable at around PEN3.1000/US$ over the coming weeks.

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