The dollar reached a new historical record in the Colombian interbank market. During the last day of Friday, the US currency reached a maximum of 4,209.99 pesos, a price never seen before, and based on the average of the day, the representative market rate (TRM) in force until Tuesday is the highest in all time, of 4,198.77 pesos.
The dollar has been rising throughout the world, and there are those who consider that all currencies in Latin America will show a depreciation in the coming weeks due to international factors that affect its export products.
You can read: 1.4% rise in May in building costs
For now, everything looks like we are going to have an era with an expensive dollar as long as these economic phenomena are not resolved worldwide”, Luis Fernando Mejía, director of Fedesarrollo.
According to Andrés Langebaek, executive director of Economic Studies of Grupo Bolívar, If an analysis is made at a global level, a clear behavior of all the currencies that are devaluing with respect to the dollar can be noticed.
The trend is manifested in different markets and not only in the country.
However, the international trend in recent days in Colombia was joined by the election results, which also put pressure on the currency.
Also read: Elevators and other security issues in residential complexes
1. Why is the dollar rising?
In summary, the forces that have been driving the dollar in the world come from the increases in interest rates by the Federal Reserve (Fed, central bank of the United States), which have been raised to curb price increases in that country.
When interest rates rise, consumption and investment are slowed down, which raises fears that the United States will enter a recession, that is, that the country will produce less and reduce employment.
The prospect of lower production in a power such as the United States leads one to anticipate that fewer raw materials such as oil will be needed. The foregoing causes their prices to drop and the currencies of countries that produce the raw materials to weaken, and this is the case of Colombia, which exports crude oil.
Likewise, the possibility of a recession also strengthens the dollar because it is seen as a refuge currency globally.
According to Luis Fernando Mejía, director of Fedesarrollo, “40 percent of our exports depend on oil and its derivatives and therefore manifests itself in the price of the dollar.”
For his part, Felipe Campos, manager of Economic Research at Grupo Alianza, says that in the complicated environment, politics has been included in the price of the dollar, but he pointed out that the course of the currency will continue to be imposed by oil and the global situation. .
A) Yes, In addition to international factors, in Colombia the price of the dollar had an additional boost due to the electoral result. The concern about the electoral issue in the country, says Langebaek, comes from months ago, which generated fear in several economic agents and could have an impact on the value of the currency.
It may interest you: The 10 most expensive cities in Latin America to buy a home
According to an analysis by Bloomberg, “the election of Gustavo Petro in Colombia, the first leftist president of the Nation, caused a liquidation of local assets and pushed the peso” to record lows.
Mejía points out that in the face of uncertainty due to an election there is volatility, but he considers that with the appointment of the new Minister of Finance, José Antonio Ocampo, this type of phenomenon can calm down. However, he considers that there are still elements missing within the incoming government that can contribute to local events helping to curb the dollar’s rise.
However, Bloomberg analysts say that “not even the appointment of the well-known economist and former central bank co-director José Antonio Ocampo as finance minister this week was able to reverse the negative perception.”
2. How long will it go up?
If the aforementioned phenomena persist, economic uncertainty and the increase in the price of oil, the dollar would continue to rise. Therefore, the strengthening of the dollar becomes an incentive for investors to protect their money in the United States and not in emerging economies, as in the case of Colombia.
“It is difficult to predict because these phenomena can be reversed, but for now everything looks like we are going to have an era with an expensive dollar while these economic phenomena are not resolved worldwide,” added Mejía.
For Langebaek, if a recession is confirmed in the United States, surely monetary policy would have to be modified in this country. So far there have been changes in interest rates, and the market took these signals as the possibility that these increases will continue.
Consequently, if the economic activity of that country goes into recession, these rates would have to fall again, which would help to moderate the appreciation of the dollar at a global level and, therefore, to an appreciation of the currencies of countries emerging.
More news: Do you have a motorcycle? These are the taxes that must be paid in Colombia
3. How does it affect the country?
The repercussions of the behavior of the dollar can mean impacts both for ordinary Colombians as well as for businessmen.
For example, for those who are exporters, this is good news since with the high cost of the dollar, those who sell their products abroad are paid more. On the contrary, for importers it is a challenge, since they must buy in dollars and raise the sale price in the country.
For households, there are imported products that will have a higher cost, for example, appliances or cars.
There are also indirect repercussions in the increase in the price of products used at home. This is the case of fertilizers, since if their import price rises, this leads to the value of food also increasing, which affects the pockets of families.
Also read: Bancolombia responds to inconsistencies in user balances after failures
The phenomenon also affects those entrepreneurs who have debts in dollars because they have to pay more money. “Colombia is usually an importer of wheat, corn or barley, so these are products that will also rise in price,” Langebaek said.
However, he specified that this is not an immediate effect since importers have inventories that will cover the demands of Colombians for a time, which compensates a little for the moment in which the peso is being devalued in the country.
4. Is the Government impacted?
The Government issues public debt abroad, like large companies, which means that when the price of the dollar rises, this implies that the value of the debt in pesos also increases. The foregoing implies that the capital owed increases and also what is paid in interest.
According to Langebaek, if one takes into account that in 2020 and 2021 the National Government increased its debt in dollars considerably, greater exposure to changes in that currency is generated, so this trend can also negatively affect.
5. Would there be opportunities?
As for the net balance, for importers or exporters, in the current context it is not good because the country has a fairly high trade deficit (imports exceed exports) and the price of the dollar has risen for several months, which For Mejía, it has not been possible to take advantage of the export side. But he believes that entrepreneurs find an opportunity at this time to focus on the foreign market, since it is increasingly profitable to export and channel products abroad.
In addition, in the short term there are negative effects on balance, but we must also consider that the products that Colombia produces are very cheap, so it could increase its export levels. It could also increase tourism in the country as with a cheap currency visitors can see an opportunity to travel here, Langebaek explained.
You can also read:
Tesla must pay a million to a mechanic who denounced the company
Is it necessary to have a Human Resources area in a company?
Bancolombia users report new failures in the system