Venezuela Exchange Rate October 2016


Venezuela: Parallel dollar depreciates and nears the 1,100 VEF per USD threshold

October 7, 2016

The bolivar has appreciated somewhat since early March when it crossed the 1,200 VEF per USD threshold and hit an all-time low. The bolivar gained ground against the USD in the second quarter, but experienced some mild volatility thereafter and began to depreciate again in late September. On 7 October, the bolivar traded in the parallel market at 1,093 VEF per USD. The result represented a 6.6% depreciation over the same day of the previous month and a steep 48.5% depreciation over the same day last year. The parallel dollar has lost 31.1% of its value since the start of the year.

Panelists participating in the LatinFocus Consensus Forecast see the parallel dollar continuing its downward trajectory this year and project a non-official exchange rate of 1,124 VEF per USD by the end of 2016. In 2017, the panel sees the non-official exchange rate depreciating further to 1,655 VEF per USD.

Meanwhile, the Dipro exchange rate—the first tier of the exchange rate system—remained unchanged at 10.00 VEF per USD on 7 October. 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 remained broadly stable since early July, after having depreciated continuously since its introduction in March. On 7 October, the Dicom traded at 659.4 VEF per USD. The result represented a 1.8% depreciation over the same day of the previous month.

Analysts remain highly skeptical regarding the effectiveness of the new exchange rate system. It is very unlikely that the Dicom will alleviate shortages of goods and services because the government still maintains price controls and there are numerous legal hurdles to imports. In addition, doubts persist about whether the government will commit to a floating exchange rate regime. The government has never allowed any of the three previous exchange rate systems implemented since 2013 to float freely and be set by market forces.

The majority of FocusEconomics panelists that provide exchange rate forecasts project that the Venezuelan government will modify the exchange rate system before the year-end. For 2016, five panelists expect the current exchange rate system to remain unchanged, while the remaining six panelists that provided forecasts expect a devaluation in the official exchange rate. By the end of 2017, all panelists foresee a change in the currency exchange rate system. On average, panelists expect the bolivar at the Dipro exchange rate to end this year at 108.4 VEF per USD. Next year, the panel sees it trading at 712.1 VEF per USD.

Author: Jean-Philippe Pourcelot, Economist

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Venezuela Exchange Rate Chart

Venezuela Exchange Rate October 2016 0

Note: Official and non-official exchange rate of Venezuelan bolivar (VEF) against U.S. dollar (USD).
Source: Thomson Reuters Datastream, Venezuela Central Bank (BCV) and local sources.

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