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.
Exporters resent the strength of the local currency against the dollar, which reduces competitiveness at a time when export volumes are falling.
Since the beginning of the year until mid-August, the price of the Quetzal against the dollar has gone from Q7,63 per dollar to Q7,50, a difference of 13 cents resulting in a decrease of competitiveness for exporters and sectors that generate revenue in the US currency.
Strong growth of remittances and savings in the oil bill are two of the factors responsible for an increase in the supply of dollars which is putting downward pressure on its price against the quetzal.
Appreciation of the Guatemalan currency against the US currency is also due to lower demand for dollars in the local market, according to statements made by the president of the Bank of Guatemala to S21.gt.
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 increase in remittance income is the main factor that has led to the value of the local currency against the dollar rising to its highest level in the past two years.
While in other Central American countries local currencies have tended to lose value against the dollar, in Guatemala the strong flow of foreign exchange into the country has put upward pressure on the supply of dollars causing an appreciation of the quetzal, which was quoted on 5 October at Q7,63 to the dollar.
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.
The latest announcements in Costa Rica about greater exchange rate flexibility to appreciate the colon are worrying exporters.
An article on Crhoy.com reported that "Late last year, the president of Costa Rica’s Central Bank (BCCR) Rodrigo Bolaños announced that the monetary authority will continue the transition announced in 2006 seeking to lead the country towards greater exchange rate flexibility consistent with the full adoption of inflation targeting."
While interest rates for local currency remains at current levels, dollars will continue to enter the Costa Rican economy, which will prevent its devaluation.
Analysts believe that in Costa Rica the exchange rate will remain near 500 colones per dollar at least until 2015. The establishment of this date is subject to announcements from the Federal Reserve of the United States, which can predict that in that country expansionary monetary policies will remain in place until that year.
Sectors affected by the appreciation of the colon against the dollar must innovate to survive in the market, experts say.
In Colombia, the appreciation suffered by the Colombian Peso against the dollar in recent years hit the export sector, especially flower exporters and garment factories, sectors which have reduced significantly as a result of not being able to compete under the new conditions.
Investors are focusing on local currency due to its renewed value and the issuance of bonds at higher interest rates.
Elperiodico.com.gt outlines, "The Bank of Guatemala (Banguat), informed that payments in foreign currencies reached Q21.3 billion in December and Q23.0 billion during February, while payments in Quetzals went from Q106.2 billion to Q105.6 billion over the same period of time. This means there are fewer Quetzals in the economy, triggering an appreciation of domestic currency against a greater presence of foreign exchange."
Investors might be seeing the Costa Rican Colon as a risky asset with good yields for “carry trade” transactions.
ALDESA reported that the ups and downs of the Costa Rican currency are being monitored by international investors, in addition to the recent comments by the new president of the Central Bank, who suggested more future intervention to ease the currency’s volatility.
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