The dollar regains shine in the Peruvian market compared to local alternatives.

After a complicated 2023 for the dollar, with some loss of ground against other currencies, the beginning of 2024 has brought a renewed shine to the US currency. According to the profitability ranking prepared by the consulting firms MC&F and IFEL at the end of January, deposits in dollars have emerged as the most profitable alternative in the local market. On average, accounts denominated in dollars in banks offer a return of 3.1%, surpassing other options such as those offered by municipal savings banks (3%), the Lima Stock Exchange (2.9%), mutual funds (2.6%), pension fund investments (1.6%), and other investment instruments, according to the ranking by MC&F and IFEL. The strength of the US economy, reflected in a growth of 3.1% in 2023, has driven the appreciation of the dollar by 2.8% in January. In turn, the contraction of the Peruvian GDP by 0.55% in the same period has contributed to the depreciation of the sol, as explained by Fernando García, investment manager at Kubus Capital. This situation has created a scenario in which inflationary pressures in the United States are leading the Federal Reserve (Fed) to postpone the reduction of its interest rate, currently at 5.5%. In contrast, inflation in Peru is decreasing, which has allowed the Central Reserve Bank of Peru (BCRP) to reduce its rate to 6.25%, as stated by Tandem Finance CEO, Paul Rebolledo. The narrowing of the interest rate differential between both countries has made investments in dollars and alternatives linked to this currency more attractive for investors, compared to emerging market currencies like the sol. Experts agree that this trend will continue to be favorable for dollar investments at least until mid-year, when the Fed is expected to begin reducing its interest rate. Amid this landscape, deposits in dollars are presented as a valid option for Peruvian investors seeking stability and profitability in a context of lower volatility. Individually, mutual funds investing in US technology company stocks lead the profitability ranking, with returns of up to 8.6%. Although there are differing opinions on the future of these stocks, experts recommend caution in their increase. On the other hand, mutual funds investing in fixed income instruments also stand out, attracting the majority of participants in this type of fund. In an environment of economic slowdown, with lower demand and reduced inflation, the Central Bank has chosen to cut its interest rate, favoring investments in bonds and improving the returns they generate. In summary, the current outlook positions deposits in dollars as the most profitable option in the local market, supported by the strength of the US economy and the monetary policy decisions of the Fed and the BCRP. Peruvian investors find in these dollar alternatives an attractive way to preserve their capital and obtain returns in a context of global economic uncertainty.