By changing the exchange rate rule and issuing certificates of deposit in dollars, the Banguat aims to minimize the downward trend that has been seen for months in the price of the dollar against the Quetzal.
An increasing inflow of remittances coming into the country is the main reason behind the excess of dollars in the economy, a figure that the Bank of Guatemala has estimated at $1 billion.
Starting December 22nd 2016 a new rule applies that prevents banks in Costa Rica from deciding how much of their capital they want to hold denominated in dollars and how much in colones.
In an attempt to gain more control of the risk involved in foreign exchange transactions by banks and their impact on the exchange rate, the Central Bank has changed the rules for foreign exchange cash operations, forcing banks to change the composition of their assets so that the proportion denominated in dollars is equal to the proportion of assets in that currency.
In the first nine months of the year the Bank of Guatemala has intervened in the exchange market with $1 billion in order to keep the Quetzal from appreciating further.
The increasing flows of remittances coming into the country are the main reason behind the appreciation of the Quetzal against the Dollar. So far this year the Bank of Guatemala has had to intervene by acquiring more than $1 billion, thus increasing monetary reserves.
The Central Bank is not ruling out intervening in the exchange market when it considers that the movement of the dollar against the Colon could jeopardize keeping inflation under control.
At a time when exporting companies insist on giving more flexibility to the exchange rate in order to favor a devaluation to improve their competitiveness abroad, the central bank is standing firm in its position to intervene in the exchange rate when necessary to maintain stable inflation.
Costa Rica's export sector wants to regain competitiveness through devaluation of the colon, but the Central Bank insists that the exchange rate is at the right level.
An article in Nacion.com reports on the pressure put on authorities at the Central Bank (BCCR) by exporters, to devalue the local currency which would increase the competitiveness of Costa Rican exports, which in the past year fell by one billion dollars.
The Central Bank of Costa Rica has officially eliminated the exchange rate band which has been in place since 2006, and let the exchange rate float, reserving the right to "participate in the market to prevent violent fluctuations".
From a statement issued by the Central Bank of Costa Rica (BCCR):
In order to moderate the decline in the dollar the Bank of Guatemala has made two interventions so far in 2015.
During 2013 the Guatemalan currency gained about 3% against the dollar, making exports less competitive. Due to the fact that the trend has continued, the Bank of Guatemala has started to apply the rule of exchange participation in order to moderate behavior of the currency.
The volatility of the exchange rate (measured by the standard deviation of 15 days MONEX) is at the lowest level of the year and similar to the levels recorded in December 2013, when the exchange rate was quoted at the "floor" exchange rate bands.
Over three consecutive days the central bank injected $39.4 million into the wholesale foreign exchange market in order to control the rise of the dollar against the local currency.
The U.S. dollar was quoted on Thursday May 29 at 559 colones in the Monex wholesale market, which is above the average value of 555.6 colones per dollar recorded on Wednesday 28 May. In order to prevent the exchange rate from rising further, the Central Bank made several interventions in the last few days, which totaled $39.4 million. At the end of Friday 30, the exchange rate stood at around 556.02 colones per dollar.
The monetary authority explains the procedure for defining interventions in the exchange market, without disclosing specific criteria.
From a communiqué by the Central Bank of Costa Rica:
EXCHANGE INTERVENTION BY THE CENTRAL BANK DUE TO VIOLENT EXCHANGE RATE FLUCTUATIONS
Regarding interventions carried out by the Central Bank of Costa Rica (BCCR) within the exchange rate band in order to avoid violent fluctuations in the daily exchange rate, the following should be noted.
The activity is now regulated by the Superintendency of Securities, with brokerage houses restricted.
Prensa.com reports that "the new regulations reflect concerns about Panama's capital market in relation to a significant number of operational houses selling consulting services and developing activities in the forex market, without the need to obtain a license or approval by the Government ".
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