Odd currency crisis... Peruvian central bank intervenes in FX market... against the sol

Foreign investors are moving so much capital into Peru that the central bank is starting to intervene in the foreign currency market to buy dollars.  Yes, we have an emerging market country taking desperate measures to protect the value of their own currency, not from devaluing, but from overvaluing.  Irony on so many levels, but all an indication of how the world has changed.  It's becoming clearer that the growth opportunities are not in the advanced economies but rather in the developing world.  

Part of the reason Peru (now investment grade at BBB-/Baa3) is so attractive is that the central bank has rbeen raising interest rates to try to slow the high growth economy from overheating. El Banco Central de Reserva del Perú has bought $4.8 billion so far this year, including $1.6 billion just this month, and is considering other measures, such as allowing domestic pension funds to increase allocations to foreign investments.  

It's hard to fight against investor flows, on the outflows as well as the inflows.

Posted by Roger K. Horn