Sol-itary Confinement

In an effort to reduce exchange rate volatility (read weakness), the Peruvian central bank (BCRP) raised its reference rate to 3.25% last Friday. The effect has been negligible, with the unit currently trading at PEN3.4130/US$, its weakest level for more than a year. The BCRP has made clear that this is not the beginning of a tightening cycle, and in our view, the one-off shot in the arm is unlikely to provide a significant near term boost, but should stem further losses. If not, a significant breach of PEN3.4100/US$ could presage a depreciation to strong support at PEN3.4800/US$. The BCRP

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