Venezuela: Bolivar in parallel market crosses 5,000 threshold in early May
May 11, 2017
Taking a look at exchange rate movements since the start of the year, on 8 May, the bolivar traded in the parallel market at 5,114 VEF per USD, crossing the 5,000 VEF threshold for the first time ever on 5 May. The result marked a steep 13.8% depreciation from the same day of the previous month and an all-time low. The parallel dollar has shed 38.1% of its value since the start of the year, representing a massive 78.3% depreciation from the same day last year.
The bolivar traded in the parallel market continues to experience extreme volatility after depreciating sharply in October. The currency has depreciated starkly since Q4 2016 due to a reduction in the Central Bank’s reserves requirement and an increase in monetary financing to PDVSA. The latest political developments at home partly explain the massive fluctuations in the currency in recent weeks.
Panelists participating in the LatinFocus Consensus Forecast see continued pressure on the parallel dollar and project a non-official exchange rate of 7,403 VEF per USD by the end of 2017. In 2018, the panel sees the non-official exchange rate trading at 6,274 VEF per USD.
Meanwhile, the Dipro exchange rate—the first tier of the official exchange rate system—remained unchanged at 10.00 VEF per USD on 5 May. According to the government, the Dipro is used exclusively to purchase essential goods such as medicine and food products and can face devaluations when authorities deem it necessary.
The free-floating Dicom—the second-tier of the system—has depreciated modestly since the start of the year after remaining broadly stable for most of the second half of last year. On 5 May, the Dicom traded at 720.7 VEF per USD, depreciating 1.3% from the same day last month and 6.9% since the start of 2017. The Dicom has lost 44.6% of its value from the same day in 2016.
In late March, the government announced cosmetic changes to the Dicom rate to improve dollar access in the economy by holding two weekly auctions instead of seven with a pre-established amount starting in mid-April. However, no change in the system has occurred yet. The proposed changes are not expected to have any meaningful impact since they don´t address the structural problems plaguing the Venezuelan FX market, namely currency controls. Analysts consider that the latest attempt will fail to improve liquidity and will therefore become another unsuccessful attempt to reform the convoluted exchange rate system in the country.
On average, panelists expect the bolivar at the Dipro exchange rate to end 2017 at 235.4 VEF per USD. Next year, the panel sees it trading at 544.8 VEF per USD.