Venezuela: Parallel rate continues to depreciate sharply while Dicom rate holds steady
October 6, 2017
On 6 October, the bolivar traded in the parallel market at 26,749 VED per USD. The result marked a 24.5% depreciation from the same day last month. The parallel dollar has shed 88.2% of its value since the start of the year and a massive 96.2% of its value from the same day last year.
Against the backdrop of an economy crippled by soaring inflation and a massive debt burden, the bolivar traded in the parallel market has seen an almost uninterrupted depreciation since Q4 2016 due to a drop in the Central Bank’s reserves requirement and an increase in monetary financing to the state-owned oil and natural gas company (PDVSA). This has perpetuated a vicious “inflation-depreciation” spiral as the two trends reinforce each another, whereby higher inflation raises the demand for dollars, and as more dollars are purchased, the black-market price of the dollar rises, increasing the cost of imports and propelling inflation up even further.
Panelists participating in the LatinFocus Consensus Forecast see continued pressure on the parallel dollar and project a non-official exchange rate of 39,437 VEF per USD by the end of 2017. In 2018, the panel sees the non-official exchange rate trading at 593,927 VEF per USD.
On the other hand, the Dipro exchange rate—the first tier of the official exchange rate system—remained unchanged at 10.00 VEF per USD on 6 October. According to the government, the Dipro is used exclusively to purchase essential goods, such as medicine and food, and can face devaluations when authorities deem it necessary.
The Dicom exchange rate, the second tier of the exchange rate system introduced by the Central Bank, traded at 3,34 VEF per USD on 6 October, virtually stable from the same day last month but a 79.8% depreciation since the start of 2017. The Dicom has lost 80.6% of its value from the same day in 2016.
Author: Nihad Ahmed, Economist