The U.S. Dollar has been losing its value, pushed down by unattractive interest rates and lack of investment alternatives.
Tuesday, March 29, 2011
In the Costa Rican foreign currency exchange, the dollar has been hovering close to its minimum allowed level of 500 colones for the past few months. This is explained by the lack of attractive investment options in this currency, low interest rates and the constant intervention by the Central Bank in the forex market.
Some analysts believe the situation is temporary, although it has been happening for several months now, and expect the currency to reach 520 colones by the end of 2011.
"According to surveys, the market is paying attention to two main factors: interest rates and market expectations", noted an article in El Financiero.
After more than two years of virtual immobility, the dollar started a rise which has been linked to changes in external variables, accompanied by a concentration of credit in the US currency.
Accompanying this depreciation of the local currency is an increase in the benchmark rate for dollars, a new indicator that the Central Bank started publishing a few weeks ago.
An editorial on Nación.com notes "...The new benchmark rate in foreign currency calculated weekly by the Central Bank has gone up.There has also been a slight rise in quotes of the colón against the dollar in the foreign exchange market.Could there be a relationship between the two movements? "
It is reported that the reason for the rate hike is"... in the opinion of those bankers who were surveyed ... the rise is due to a shortage , or perhaps less abundance, of dollars circulating in our environment. Closely linked to the lower liquidity is the high concentration of credit granted in that currency. "
The exchange rate in the wholesale market reached 558 colones per dollar, while at bank counters one dollar was being sold (on Wednesday March 5th) at 565 colones.
The price of the dollar in Costa Rica has not found an upper limit, trading at 565 colones per dollar at some bank counters, which is sixty colons more than earlier this year.
Aldesa discusses the possible directions that the monetary policy of the Central Bank of Costa Rica could take, while the influx of speculative capital accelerates.
From Pulso Bursátil, the Blog by Aldesa:
The Central Bank's dilemma ... floating exchange?
In recent weeks there has been speculation about possible changes in the Central Bank of Costa Rica’s (BCCR) monetary policy, in the light of the behaviour of the foreign exchange market at the end of 2012 and so far in 2013. The comments are gaining more weight as the limits established in the BCCR’s reserve accumulation plan get closer to being reached. The plan states that the entity can purchase, for the purpose of defending the lower limit of the bands, a maximum of U.S. $1.5 billion in 2012 and 2013. As of today the figure is U.S. $1.49 billion.
Yesterday Banguat sold $33.5 million, to curb the increase of the dollar, as it has been doing in the last months.
In the interbank market, the dollar reached a record price of Q8.30.
"In the last weeks several economic analysts have pointed out that there is high speculation in the currency market, because big exporting companies choose not to sell their dollars, or trade a minimum just to cover their operations, because they know that if they wait a few days they'll get better prices for their dollars, and earn a profit", reported Elperiodico.com.gt.
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