Wednesday 24 February 2021

Do you use dollars? Serious insider threats could accelerate upward trend

Central Bank has had to intervene to prevent the exchange rate from skyrocketing

QCOSTARICA – The uncertainty generated by the announcement by President Carlos Alvarado that to keep the exchange rate stable, fiscal measures should be taken, had resulted in a upward trend in the dollar exchange.

If uncertainty continues, the behavior of the exchange rate could accelerate its upward trend, warns María Brenes, director of Corporate and Business Relations at the National Stock Exchange.

Also influencing the dollar exchange rate are the effects of the brakes on the proposal to negotiate with the IMF, the multisectoral negotiation process that will take several weeks and the subsequent discussion of the measures agreed upon in Congress.

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This situation occurs because many investors take refuge in dollars and therefore demand grows and the Central Bank (Banco Central) has to intervene more than it has done, injecting resources into the market, explained Roxana Morales, an economist at the National University (UNA).

In the last three weeks  alone the Central Bank has had to invest about US$57 million to contain its exchange rage.

It is not the first time that a government speech generates this type of uncertainty and forces the Central Bank to intervene.

In mid-September, the Central Bank had to intervene due to the reaction generated by a government video in which it warned about the devaluation of the colon if an agreement was not reached with the IMF.

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Some specialists offer a projection how the dollar exchange will behave.

Daniel Suchar, an independent economic analyst, estimates that it will remain at ¢605 (the average, because in some banks it exceeds ¢611), but due to the intervention of the Central Bank that gives it “artificial stability”, since he estimates that Otherwise, the rate would go above ¢610.

María Brenes, director of Corporate and Business Relations of the National Stock Exchange, foresees a dollar between ¢612 and ¢615 for the end of October.

To contain the rise of the dollar exchange despite the uncertainty and lack of flow of tourists and Foreign Investment, it would be necessary to bet on the increase in the deposit of dollars in checking accounts, the boom in exports and the containment of imports.

In scenarios like these, investors use the dollar as a protection deposit, this increases the demand for dollars and, given that the supply of dollars has been affected by the closure of borders, the fall in production and exports, the exchange rate tends to rise.

Karla Arguedas, Advisory Manager at Prival Securities Stock Exchange, says that when the market is afraid, it takes refuge. This means that there will be a greater demand for dollars and the exchange rate would increase. On the other hand, large dollar savers may make the decision to withdraw from the country amounts that would put fuel on the fire.

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Agatha Gutierrez, Economic-Financial Analyst for Financial Group Stock Market, adds that it is clear that the delay in negotiations with the IMF and, beyond that, a structural fiscal reform, generate uncertainty and therefore pressure to devalue.

Source: La Republica.

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We strive for accuracy in its reports. But if you see something that doesn’t look right, send us an email. The Q reviews and updates its content regularly to ensure it’s accuracy.

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