Venezuela: Non-official exchange rate appreciates following Sicad II's introduction
April 9, 2014
On 24 March, the government launched the long-awaited Second Complementary Administration System for Foreign Exchange (Sicad II). The new system allows the dollar to trade freely in the market through approved intermediary institutions. On its first day under the Sicad II system, the bolivar traded at a weighted average of 51.9 VEF per USD, which represented a de facto devaluation of 723% over the official exchange rate of 6.30 VEF per USD. Although no information was provided on the volume of the transactions, market participants suggest the total amount of funds available in the auction was as little as USD 500,000.
Following the introduction of the Sicad II, the exchange rate in the parallel market gained ground. On 24 March, the non-official exchange rate traded at 57.0 VEF per USD, which was 31.7% stronger than in the same day of the previous month and marked the highest level since November 2013. That said, the bolivar was still 143% weaker on a year-on-year basis. Subsequently, the exchange rate from the Sicad II system remained broadly stable. On 9 April, the rate was 49.1 VEF per USD. Conversely, the non-official exchange rate weakened slightly and traded at 64.6 VEF per USD. Meanwhile, the latest auction on the secondary exchange rate system, known as Sicad, offered an exchange rate of 10.0 VEF per USD. Meanwhile, on 31 March, the Central Bank increased the bank reserve rate by 1.0 percentage points to 21.5%, in an attempt to contain monetary expansion and tame the country's record inflation.
LatinFocus Consensus Forecast panelists see the official exchange rate ending this year at 10.09 VEF per USD, which is down from the 10.65 VEF per USD expected last month. Next year, the panel sees the bolivar deprecating further to 13.56 VEF per USD. LatinFocus Consensus Forecast panelists expect a Sicad II exchange rate of 50.5 VEF per USD in 2014. Next year, the panel sees the bolivar under the Sicad II system weakening to 57.8 VEF per USD. Despite the introduction of the Sicad II system, LatinFocus Consensus Forecast panelists still expect a sizeable activity in the black market, with a non-official exchange rate projection of 71.3 VEF per USD by the end of this year. In 2015, the panel sees the non-official exchange rate depreciating to 81.3 VEF per USD.