With the disappearance of the differential between the interest generated on the two currencies, the choice between one or the other for using for savings is being defined by the risk of devaluation of the colon against the dollar.
An article in Elfinancierocr.com reports how the fall of the passive base rate during 2016 decreased the gap between interest rates paid on deposits in both currencies, concluding that "...If the trend continues, for savers it will be the same keeping their money in colones or in dollars and they may prefer the currency in light of the possibility of rates rising overseas."
The price of the US dollar against the Colon reached its highest value in the last two years, following an upward trend which has been noted since March this year.
On November 7 the exchange rate on the wholesale Monex market quoted a dollar at 557.22 colones, falling slightly to 557.01 a day later.The upward trend has been maintained without significant changes since the end of March, mainly due to a lower supply of dollars in the market.
Research backed by the export sector concludes that in order to reach the breakeven point, the colon needs to devalue by 20% against the dollar within three years.
Analysis by the economist and former bank manager Gerardo Corrales suggests that the exchange rate needs to depreciate by 20% in order to reach its "real" value and balance.To avoid the effect of a sudden devaluation it has been proposed that the increase be done gradually by the Central Bank.
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.
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. "
Businesses in the tourism and export sectors are insisting on the need to revise the exchange rate policy in order to recover part of the competitiveness lost in recent years.
While on one side of the fence exporters and tourism companies are asking to change the way in which the exchange rate is managed in order to improve their competitiveness, on the side are the companies and sectors that have benefited not only from the stability shown by the price of the dollar in the country but also from cheap imports.
Given the claims of loss of competitiveness by the export sector, the Bank of Guatemala is insisting that the dollar be made more expensive for reasons exclusively to do with market factors.
Guatemalan exporters are looking at the possibility of a devaluation of the quetzal induced in an international context where the dollar has tended to rise. However, the policy of the Bank of Guatemala (Banguat) is that the current exchange rate regime is adequate, and obeys market supply and demand. "The exchange rate is stable and does not favor or disfavour any economic sector", said the acting president of the Banguat Sergio Recinos to Prensa Libre.
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 is considering changing the methodology for calculating the exchange rate market benchmark, with the aim of improving price formation and reflecting the generality of transactions.
The the monetary authority's aim is to "... improve the process of price formation in the foreign exchange market and, once that is achieved, an amendment will be proposed so that the methodology for reference exchange rates reflects what happens with the generality of transactions, and not just some of them. "
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 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.
Represents the Company RTS INTERNATIONAL, Inc. of Kansas Cyty, TX, USA, for the territory of Guatemala and Central America. RTS finance exports through Factoring system.
Operates in Guatemala
Phone: (502) 2369 5408 - (502) 5709 2986
Caribbean-Central American Action (CCAA) is a private, independent organization that promotes private sector-led economic development in the Caribbean Basin and throughout the Hemisphere.
Operates in Panama, Nicaragua, Honduras, Guatemala, El Salvador, Costa Rica and Caribbean Community
Phone: (202) 331-9467