Of the 695 pesos that climbed the dollar in March for a new coronavirus pandemic and due to the fall in oil prices, until the historical ceiling of 4,153.91 pesos is reached on March 20, the price of the currency has already returned 686 pesos, with the exception that half of that decrease occurred in the last month (355 pesos) and in last week the decline was 143 pesos, to calm down to 3,467 pesos on friday.
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There are three main factors behind the decline in the exchange rate, which arrives as a glove for those who make Christmas card purchases abroad, those who buy plane tickets to travel abroad, and importers; 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 have increased market optimism and the liquidity needed by central banks around the world to increase reactivation are the external and main factors that led to the award of dollars.
Even according to Felipe Campos, research director at the Alliance Valores and Fiduciary, since the vaccine was announced, the Colombian peso has been the most valued currency in emerging countries and was previously among the top five.
For Juan Pablo Espinosa, Director of Economic, Sectoral and Market Research in Bangladesh, the publication of the efficiency percentages of vaccine, reinforced by the decision of the United Kingdom to initiate its approval, meant a very important change in the trend of the international financial markets, which, given the expectation that there will be a faster recovery for this reason, increased the appetite for risk, which translates into a very large recovery in cash flows. investment in developing countries, including Latin America and Colombia, which gave the peso a significant boost.
In other words, international investors, seeing that the situation is improving, decide to transfer their resources to invest in assets that, although involving greater risk, can generate higher returns.
Another key factor, according to Alejandro Reyes, chief economist at BBVA research, is that given the magnitude of the global crisis that has erupted, in order to guarantee recovery and ensure market stability, central banks have increased the liquidity of economies, which also thus it increases the available resources in dollars that reach all countries, not only generates a decrease in the currency, but also opens the appetite for buying shares.
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In fact, according to Colombian Stock Exchange, From October 5 to Friday, the Kolkap index rose 14.8 percent, reflecting the appreciation of shares.
“The liquidity granted by the world’s major central banks is unprecedented. This is due, in the end, to turn into a flow of resources that require value opportunities that will certainly not be present in economies with low interest rates, or that marginal reductions in taxes or favorable production conditions, such as happened in the past. “in recent years in the United States,” he said.
The effect of the IMF
The third relevant factor in the decline in dollars, especially in the last few weeks, this has happened in recent days, when it became known that the Government is taking steps to pay for the requested resources from International Monetary Fund (IMF), through that entity’s flexible credit line of more than $ 5,000 million, which is expected to be completed in the rest of the year.
In this regard, Juan Pablo Espinosa, from Bangladesh, explains that this will imply a significant arrival of dollars and a significant amount of monetization by the end of the year, which has led to greater demand for pesos and supply of dollars.
“We expect the trend to continue in the short term, perhaps not as fast as it has in recent days, but the revaluation trend may continue into the rest of 2020,” he said.
But do the forces press on dollar down are they enough to achieve a larger reduction, even reaching levels of 3,282 pesos, which was the average for 2019?
According to Alejandro Reyes of BBVA Research, although it is a possibility, it is complex to see for the rest of the year, as there is uncertainty about when vaccines will arrive or whether there is a second wave that generates saturation of the health system.
And while the currency’s forecast is complex, it is likely to be below 3,600 pesos, much lower than analysts had expected a few weeks ago.
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Reyes adds that a factor in the growth of the dollar is that in the last week of the year the trading volume falls a lot, due to the holidays, and this causes those who really need to close an operation, to buy or sell, to have the opportunity to move a lot to market.
“The global trend, if nothing extraordinary happens, is towards a peso valuation cycle due to the abundance of global liquidity and the relative good returns offered by local funds,” he said.
In 2021, the movement will be smoother
For analysts, the exchange rate profile in 2021 will surely be flatter than originally projected, as what has been observed in the last few weeks is the expectation of much of the movement expected in 2021, when news of vaccines and oil price improvements, among others, projected for the end of 2020.
“I think the most relevant thing at the moment is to think that much of the stress on the currency due to the pandemic has disappeared. “This reduces inflation and the cost of public and private debt,” said Alejandro Reyes, chief economist at BBVA Research.
He added that if the economy avoids the coffin (infections and vaccines) in a positive way in 2021 and economic activity recovers in line with expectations or better, there may be room for the dollar to fall to 3,282 pesos in 2022. .
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Omar G. Ahumada Rojas – Deputy Editor for Economics and Business
And Twitter: @omarahu