September 30, 2008 / 8:04 PM / in 10 years

Peru cenbank works to keep Sol stronger than 3/dlr

LIMA, Sept 30 (Reuters) - Peru’s central bank intervened in the local foreign exchange market again on Tuesday in what traders said was a move to keep the sol firmer than 3 per dollar.

The monetary authority, which for much of this year was buying dollars to prevent a surging sol PEN=PE from overshooting, has since June been selling dollars from its $35 billion in international reserves. Reserves hit a record this year thanks to the central bank's dollar purchases.

The central bank sold $9 million on Tuesday at a preliminary rate of 2.9834, pulling the sol back slightly as it moved close to 3 to the dollar.

On Monday, it made a much larger intervention of $418.6 million as global markets plunged after a $700 billion financial bailout package failed to win a key U.S. congressional vote.

Officials of Peru’s central bank have said they want to prevent excessive volatility in the sol, which could drive up inflation during a weakening cycle, or hurt exporters in a strengthening cycle.

The central bank has repeatedly raised interest rates and tightened monetary policy this year in a bid to tame inflation, which has topped 6 percent over the last 12 months — well above the central bank’s target of 2 percent, plus or minus a tolerance band of one percentage point.

During 2008, the central bank has sold $2.3 billion and bought $8.7 billion on the local foreign exchange market. (Reporting by Jean Luis Arce, Writing by Terry Wade; Editing by Diane Craft)

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