Peru Dollar Loans Fall to All-Time Low

The percentage of dollar-denominated loans in Peru fell to an all-time low last year, a trend that many economists expect to continue as the local currency strengthens.

The Central Bank said that at the end of 2012, 43.1 percent of Peruvian credit was in dollars, down from 44.6 percent in the same month a year earlier, state news agency Andina reported.

A majority of loans to businesses were still in dollars, at 53.9 percent, while 24 percent of loans to individuals were in the U.S. currency. However, in both cases, the de-dollarization was lower than the year-earlier period.

The Peruvian sol has been on a roll lately, gaining more than 5 percent in 2012 and almost 4 percent in 2011 against the dollar. The appreciation has caught the attention of not only exporters, who have seen their earnings affected by the stronger local currency, but also high-level Central Bank and government officials.

The central bank has sought to slow the appreciation by purchasing dollars in the foreign exchange market, increasing reserve requirements, and increasing the upper limit that private-pension funds can invest abroad.

The Finance Ministry, meanwhile, has promised this week to support the Central Bank’s measures by purchasing $4 billion in 2013, part of which will be directed for early payments on foreign debt.

While most economists see a stronger sol this year, officials have expressed concerns that a sudden shift in the exchange rate trend could catch many borrowers off guardwho earn in soles but have dollar loans, as they may find themselves unable to make payments.

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