Wednesday, 5 August 2020

Why did the dollar exchange rate rise in recent days?

On August 31, the sell price of the U.S. dollar was quoted between ¢ 580 and ¢ 585

The national and state banks posted an exchange rate of between ¢580 and ¢585, on the afternoon of August 31, for one US dollar.

Today, Tuesday, September 4, the sell rate at the Banco de Costa Rica (BCR) and Banco Nacional (BN) was ¢588 and ¢587, respectively. Private banks posted similar rates.

The exchange rate set by the Banco Central (BCCR) – Central Bank – for Wednesday, Sept. 5 is ¢585.15, up ¢11.99 from the ¢573.16 set last Wednesday (Aug. 29)

These movements are not sudden. Some sessions ago on the Mercado de Monedas Extranjeras (Monex), the currency market began to shake and even required the sale of dollars, for stabilization, by the BCCR.

- paying the bills -

The Central Bank sold about US$39 million in just two days of the week (August 29 and 31), after a period of six months of relative tranquility.

According to the experts, the behavior of the dollar price is based on several factors.

First, we must bear in mind that August presents a “seasonality” each year. In this month the exchange rate tends to increase, a behavior that also occurs in December. In September, the next month, the exchange rate tends to decrease due to the payment of taxes.

Second, there is the dynamics of the foreign exchange market, fostered by the fiscal deficit. The banks have surplus dollars. In other words, there has not been so much pressure because of the low demand for foreign currency, since they have bought more dollars from the public than they sell.

The third reason goes beyond the supply and demand, it is a regulatory change. Since June, the BCCR incorporated a commission of 0.7% for each transaction. To avoid that cost, recently some financial institutions have begun to buy and sell among themselves, explained Emmanuel Agüero, a specialist in economic analysis of Aldesa.

- paying the bills -

This has caused the market to be illiquid and some large buyers have had to take the price given to them.

The fourth factor that would be affecting is the message of the Central Bank. The changes could be a reflection of the desire for greater flexibility of the exchange rate, which has manifested Rodrigo Cubero, president of the Central Bank, since he took office on August 1, explained the economist Alberto Franco.

“We are going to have an exchange rate that moves more, that fluctuates more,” said the bank president in a statement.

The market could be testing how much volatility the monetary authority will allow. The president of the BCCR has been clear in saying that he will not allow abrupt movements of the dollar either since he recognizes that this could translate into a risk since it is such a dollarized economy.

The fifth explanation for the recent movement in the price of the dollar is the decrease in the premium for investing in colones.

This has happened mainly in the short term, explained Franco. The level of US interest rates has increased and with that, the attractiveness of investing in national currency has fallen.

- paying the bills --

Source (in Spanish): El Financiero

Rico
Ricohttp://www.theqmedia.com
"Rico" is the crazy mind behind the Q media websites, a series of online magazines where everything is Q! In these times of new normal, stay at home. Stay safe. Stay healthy.

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