Peru’s Surprisingly Stable Sol: Why Political Chaos Isn’t Crashing the Currency
Despite a whirlwind of political upheaval – Peru’s sixth president in five years recently took office – the Peruvian Sol has defied expectations, maintaining its strength against the US dollar. This isn’t just a temporary blip; the Sol has appreciated 8.6% against the dollar so far in 2025, and 8.9% over the last 12 months. What’s driving this resilience in the face of seemingly constant crisis, and what does it mean for investors and the Peruvian economy?
The Market’s Learned to Live with Chaos
The recent vacancy of Dina Boluarte, triggering the ascension of José Jerí to the presidency, barely registered a ripple in the exchange rate. While the dollar saw a slight 0.2% appreciation to S/3,437 per US$1 on October 10th, it remained well below recent highs. Experts suggest the market has, to a degree, become desensitized to Peru’s frequent political shifts. “Peru’s risk definitely rises, there is more instability, but it could be that the market already anticipated chaos. That’s why nothing happens,” explains Alberto Arispe, General Manager of Kallpa SAB, to El Comercio. This isn’t to say instability is *welcome*, but rather that it’s increasingly factored into risk assessments.
A History of Impeachment and Adaptation
Peru’s political landscape has been remarkably turbulent. Since 2020, the country has seen a revolving door of presidents: Martín Vizcarra, Manuel Merino, Francisco Sagasti, Pedro Castillo, Dina Boluarte, and now José Jerí. This constant change has forced market operators to prioritize long-term economic fundamentals over short-term political noise. As Renta4 analysts point out, past presidential vacancies have had “limited exchange effects,” generating temporary volatility without fundamentally disrupting the exchange rate balance.
The Central Bank’s Role and Macroeconomic Strength
The credibility of the Central Reserve Bank (BCR) is a key stabilizing force. The BCR actively intervenes in the exchange market, recently conducting renewal operations for exchange-sale swaps totaling US$203 million (approximately S/700 million) to bolster the Sol. However, analysts caution that intervention can only go so far. “The intervention [del BCR] It helps, but you can’t go against the market sustainably,” Arispe adds.
Beyond central bank intervention, Peru’s underlying macroeconomic strength provides a solid foundation. Notably, Peru boasts one of the lowest levels of public debt in the region and globally, making it an attractive destination for international financing. This fiscal prudence provides a buffer against external shocks and reinforces investor confidence.
Global Factors and the Strengthening Sol
The Sol’s resilience isn’t solely a domestic story. A weakening dollar index globally has contributed to the appreciation of many emerging market currencies, including the Sol. While the dollar experienced its best week in a year internationally, driven by political uncertainty in Europe and Asia, Peru’s currency managed to buck the trend. Corporate supply, alongside the BCR’s interventions, also played a role, according to Allison Pérez, Trader of Income Foreign Exchange at 4 SAB.
The Shadow of Crime and Political Turmoil
Despite the positive outlook, JP Morgan highlights a growing concern: the increasing influence of violence and crime on both the political arena and the broader Peruvian economy. This is a critical factor to monitor, as it could potentially undermine the country’s economic stability in the long run. The World Bank provides detailed analysis of Peru’s economic challenges, including those related to security and governance.
Looking Ahead: What to Expect for the Sol
Most analysts predict a potential rise in the dollar towards S/3.60 per US$1 by the end of the year, driven by the approaching 2026 electoral process. However, the Sol has consistently demonstrated resilience, defying pessimistic predictions. The key takeaway is that Peru’s economy has developed a remarkable capacity to absorb political shocks.
The future performance of the Sol will likely depend on a delicate balance: continued prudent monetary policy from the BCR, sustained global economic conditions, and – crucially – a concerted effort to address the growing concerns surrounding crime and political instability. The Sol’s story is a testament to the power of economic fundamentals in a world increasingly defined by political uncertainty. What are your predictions for the Sol’s performance in the coming months? Share your thoughts in the comments below!