The price of the dollar continues to strengthen in the Colombian market. Analysts agree that if the message sent by the country, mainly at the political level, does not change, the currency will continue to reach historical figures and, with it, the devaluation of the Colombian peso will be greater.
(Dollar at $5,000? The outlook for Colombia with the currency at that price).
Former Minister Mauricio Cárdenas spoke about the issue and, on social networks, pointed out that local currency devaluation explains why “there are expectations of future devaluation. The market thinks that foreign exchange earnings are going to decrease due to government policies.”
3. If there is no negative external shock –quite the opposite– what then explains the devaluation of the peso?
4. My reading: there are expectations of future devaluation. The market thinks that foreign exchange earnings will decrease due to government policies.– Mauricio Cárdenas S. (@MauricioCard) October 20, 2022
So, what tools does Colombia have to contain the behavior of the US currency?
(For analysts, an internal factor is the cause of the dollar’s rise).
For Roberto Paniagua, Equity Analyst at the White House, in the medium term, the Government could give a trust message “Regarding fiscal spending and energy transition issues, together with the management of oil and gas exploration contracts.”
And, to curb the volatility of the dollar in the short term, the analyst pointed out that the issuer can “activate intervention mechanisms through derivatives, such as options, to mitigate the volatility of the exchange rate.”
(There is an ‘overreaction’ in the dollar market: Minister Ocampo).
For Juan David Ballén, Director of Analysis and Strategy at Casa de Bolsa SCB, although the Banco de la República has several mechanisms with which it could intervene, “as the main reason that has generated the volatility of the exchange rate is clear and have been the contradictory statements by the governmentthe most appropriate solution is to give a strong message of calm to the financial markets”.
“The least expensive measure is to give a strong message of calm in relation to the energy transition process and the prohibition of new oil exploration contracts in the country,” said Ballén.
(Why should the rise in the dollar matter to you, even if you earn and spend in pesos).
Cárdenas’s position, in his publication, coincides with what the analysts said. For the former minister, the country must give “messages that generate confidence in the face of foreign investment.” On the contrary, the Banco de la República will have to raise the interest rate further“at great cost in terms of economic activity”.
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