Wednesday , September 28 2022

Dollar decline, at the rate of vaccine against covid-19 and IMF credit – Sectors – Economy


Of the 695 pesos that arose per dollar in March for the a new coronavirus pandemic and because of the fall in the price of oil, until reaching a historic ceiling of 4,153.91 pesos on March 20, the price of the currency has already returned 686 pesos, with the specificity that half of that fall occurred in the past month (355 pesos) and over the past week the fall was 143 pesos, to settle at levels of 3,467 pesos on Friday.

(You may be interested in: ‘They warn of the threat of populism after the crisis due to covid’).

Behind the exchange rate fall, which arrives as a glove for those buying their Christmas abroad by card, those buying plane tickets to travel out of the country and for importers, there are three main factors; two of them international and one related to Colombia.

According to financial analysts consulted by EL TIEMPO, the good news about the effectiveness of the covid-19 vaccine, which has increased the optimism of the markets, and the necessary liquidity that central banks irrigate the world to boost the reactions are the external and main factors that have led to the relaxation of the dollar.

Even, according to Felipe Campos, director of Investigations at Fiduciaria’s Alianza Valores, since the publication of the vaccine, the Colombian peso has been the most valuable currency in emerging countries and was previously among the five most undervalued.

For Juan Pablo Espinosa, director of Economic, Sectorial and Market Research in Bancolombia, the efficiency percentages of the vaccine, reinforced by the United Kingdom’s decision to initiate approval of the same, has meant a very important shift in the trend in international financial markets, which, given the expectation of a faster recovery due to this outbreak, has been increasing their risk appetite, which translates into a very large cash flow recovery . investment towards emerging countries, including Latin America and Colombia, which has given the peso a significant boost.

That is, international investors, seeing that the situation is improving, decide to shift their resources to investing in assets that, while carrying more risk, can yield greater returns.

Another key factor, according to Alejandro Reyes, chief economist at BBVA Research, is that, given the scale of the global crisis that broke out, in order to guarantee recovery and ensure market stability, central banks increased the liquidity of the economies. , which also affects an increase in available resources in dollars reaching each country, producing not only a decrease in the currency, but also opening up the desire to buy shares.

(Too: ‘November inflation was -0.15 per cent’).

In fact, back Colombia stock exchange, Between October 5 and Friday, the Colcap index had risen 14.8 percent, reflecting the appreciation of the shares.

“The liquidity provided by the world’s leading central banks is unprecedented. This is due, in the end, to a flow of resources seeking value opportunities that will not be guaranteed in low interest rate economies, or which are not on the verge of predicting tax reductions or favorable conditions for production, as happened in the past. last year in the United States ”, he assures.

Impact of the IMF

The third relevant factor for the drop dollars, especially in recent weeks, it happened in recent days, when it became known that the Government had been taking steps to pay the resources requested by the International Monetary Fund (IMF), through that entity’s flexible credit line, with more than 5,000 million dollars, expected to expire the rest of the year.

In this regard, Juan Pablo Espinosa, of Bancolombia, explains that by the end of the year this will suggest the arrival of significant dollars and a significant amount of monetization, which has led to increased demand for pesos and supply of dollars.

“We expect the trend to continue in the short term, perhaps not at the pace of recent days, but the revaluation trend may continue in the rest of 2020,” he said.

But are the forces pushing the dollar down Are they enough to achieve a larger decline, even reaching levels of 3,282 pesos, the 2019 average?

Alejandro Reyes, of BBVA Research, believes that while this is a possibility, it is complicated to see in the rest of the year, as there is uncertainty about when the vaccines will arrive or whether there is a second wave that will produce saturation of the system . health.

And while predicting the closure of the currency is complicated, it may well be below 3,600 pesos, which is far less than analysts expected a few weeks ago.

(Also: ‘Moody’s agency maintains Colombia’s rating’).

Reyes adds that a factor for the dollar rise is that trading volume drops a lot during the last week of the year, due to the holidays, and this causes those who really need to close an operation, buy or sell, to get the possibility of much market movement.

“The global trend, if nothing unusual is happening, is towards a peso appreciation cycle due to the numerous global liquidity and the relatively good returns offered by local assets,” he said.

In 2021, the movement would be flatter

For analysts, the exchange rate profile in 2021 may not be flatter than initially predicted, as recent weeks’ observations predict a good part of the expected movement in 2021, when news about vaccines and oil price improvements, among other things predicted for the end of 2020.

“I think the most pertinent, for the moment, is to consider that a good part of the stress experienced in the currency due to the pandemic has disappeared. This reduces inflationary and cost pressures on public and private debt” , stressed Alejandro Reyes, chief economist at BBVA Research.

And he adds that if the economy avoids the covid (infections and vaccines) in a positive way in 2021 and economic activity is restored as expected or better, there may be room for the dollar to fall to levels 3,282 pesos in by the year 2022.

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Omar G. Ahumada Rojas – Deputy Editor Economy and Business
A Twitter: @omarahu

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