Between March 23 and 24 the price of the Quetzal vs. Dollar rose from Q7.67 to Q7.75, which is attributed to the expectations of a possible economic slowdown, due to the impact of the Covid-19 crisis.
The expectations of a decrease in the income of family remittances, the time that the international economy could be depressed and the component of fear in the agents, are other causes of the upward pressure that the exchange rate has reported in the last hours.
Although Guatemala and the U.S. have already signed an agreement on migration issues, the exchange rate reported a slight increase and the upward trend is expected to continue over the next few days.
President Trump's warning to Guatemala to impose export tariffs and taxes on remittances and transfers had a direct impact on the exchange market.
Data from the Banco de Guatemala indicate that between July 23 and 29 the price of the Quetzal with respect to the US dollar increased from Q7.64 to Q7.68, which according to the authorities is explained by the uncertainty generated by the possible sanctions against the country.
In a competitive scenario for lower costs and higher productivity, devaluation against the Lempira Dollar in Honduras and the Cordoba Dollar in Nicaragua is a factor that could help these economies stay competitive.
In the last five years, the exchange rate in Honduras increased by 17%, from 21.06 Lempiras per U.S. dollar in June 2014 to 24.67 in the same month in 2019.
Because of the uncertainty in the local economy, so far this year in Guatemala the Quetzal has depreciated just over 5% against the U.S. dollar.
According to Banco de Guatemala figures, between January 1st and December 19th, 2018, the reference exchange rate increased from Q7.34 to Q7.75. This upward trend contrasts with the reported last year, since during 2017 the exchange rate dropped from Q7.53 to Q7.35.
Since the beginning of the year Banco de Guatemala has intervened in the foreign exchange market buying foreign currency in order to curb appreciation of the local currency against the dollar, but in recent weeks it has been selling currencies in order to minimize depreciation.
In recent weeks the exchange rate of the Quetzal against the US dollar has been trending upwards, which has forced the Bank of Guatemala (Banguat) to sell foreign currency in the foreign exchange market.So far this year, up until September 24, it has had to intervene selling $402 million worth of foreign currency.
At the beginning of 2018 Banco de Guatemala authorized intervention in the foreign exchange market for up to a maximum of $500 million, and by last Friday $349 million had already been purchased.
With the aim of curbing appreciation of the currency against the US dollar, at the beginning of the year the Monetary Board authorized intervention in the exchange market with the purchase of $500 million, and according to Banco de Guatemala, 70% was used in the first semester of the year.
So far this year the Banco de Guatemala has intervened in the foreign exchange market buying $282 million, less than the $320 million bought in the same period in 2017.
As announced by the Central Bank authorities at the beginning of the year, the institution continues to implement actions to reduce the downward trend registered in the price of the local currency with respect to the Dollar.In January 2010 the Quetzal was quoted at Q8.40 for each dollar, and in January2018 this figure reached Q7.34.
In a new attempt to minimize the downward trend registered in the price of the local currency against the dollar, Banco de Guatemala will intervene in the exchange market buying $500 million.
The exchange rate of the Quetzal with respect to the US Dollar has trended downwards since January 2010, when the Quetzal was quoted at Q8.40, falling to Q7.34, according to the latest record available in January 2018.The new measure that is being implemented from today, involves carrying out auctions on the foreign exchange market every Friday, of $50 million each, until a total amount of $500 million has been spent.
An oversupply of dollars generated mainly by a growing flow of remittances has forced the Central Bank to intervene by buying $160 million in the wholesale market in only four days.
Intervention on the part of the Bank of Guatemala has intensified in recent weeks, due to growth in the supply of dollars in the country, which has maintained an upward trend since the beginning of the year.
In an unstable exchange market, lack of transparency in the rules on intervention by the Central Bank of Costa Rica increases uncertainty and drives investors towards the safest currency.
EDITORIAL
The rise in the price of the dollar in Costa Rica is a negative factor for some sectors and positive for others, but generally negative for the economy, because it distorts companies' plans, diminishing their competitiveness, and because it increases market players' willingness to speculate.
So far this year the average price of the US currency against the Quetzal has dropped from Q7,52 to Q7,33, reaching the lowest value since 1999.
While the flow of remittances from Guatemalans abroad continues to grow, the exchange rate can not change the clear downward trend seen year after year since 2013.Figures from the Bank of Guatemala indicate that during that year, the average monthly exchange rate stood at Q7,87 per dollar, dropping to Q7,74 the following year, closing at Q7,67 in 2015 and last year at Q7,62 per dollar. [GRAFICA caption = "Click to interact with graphics"]
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.
Although the export sector continues to denounce the loss of competitiveness because of appreciation of the quetzal against the dollar, the Central Bank insists that the exchange rate will remain dependent on market factors.
A year ago the complaint was the same.Exporters asked the Central Bank for a review of the exchange scheme to induce a devaluation that would allow them to recover some of the competitiveness lost abroad because of the exchange rate.The situation today has not changed, and exporting companies have asked for the Ministry of Agriculture to intervene in this matter.
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.