The price of the dollar: how the currency will behave in 2024; what experts say – Industries – Economics

The Colombian peso ended 2023 as one of the world’s currencies that has closed its distance against the dollar the most. In those 365 days, the local currency lost more than 988 pesos against the US currency, although at times the difference was as high as 1,240 pesos due to the volatility that prevailed for much of the coming year. There are a few hours left until the end.

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The representative market rate (TRM) at which 2023 ends and next year begins was P3,822.05. This is not only the lowest in a year, but also in more than 18 months, as the last time such a level was seen was on June 10 last year, when it reached P3,833.34, Bank of the Republic statistics show.

Although the dollar’s fall came a little late for thousands of Colombian travelers who have chosen a destination abroad these days to ring in the new year, those who see the currency’s decline as an investment opportunity will have a few days to do so, as analysts see that 2024 will continue to be marked by strong volatility, the result of adjustments that are due to take place in the world’s major economies, especially in the United States, which could lead to the currency returning to levels close to 4,500 pesos.

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Besides, The peso has performed best among Latin American currencies in 2023. Its revaluation against the dollar reached more than 20.5 percent, placing it first among a group of 25 important currencies, among which, in addition to several Latin American currencies such as the Mexican peso (12.85 percent) and the Brazilian real (8.20 percent). percent), Swiss franc (8.96 percent), pound sterling (4.84 percent) and euro (3.65 percent).

US central bank rates, the Federal Reserve (Fed), commodity costs and the fact that domestic investors have softened Colombia’s punishment for a political issue, as has happened with other countries in the region, have strengthened Latin American currencies, especially the Colombian peso.

Economists at Grupo Alianza say that structural changes in the economy are always reflected in the foreign exchange market and cite, for example, that when the oil crisis occurred the currency reached 3,450 pesos, during the pandemic the jump was 4,200 pesos, and during the crisis the recent political crisis the exchange rate exceeded 5,000 pesos.

Felipe Campos, investment and strategy manager for the said group, explains, however, that what is happening in Colombia today with the currency is consistent with what is happening in Latin America and the world, where the dollar has weakened significantly due to the current crisis. global situation.

However, A factor that analysts especially emphasize is the change in foreign investors’ perception of the domestic political context. where, in their opinion, there will be no more structural changes, which also reflected a reduction in country risk.

According to Juan David Ballen, director of analysis and strategy at Casa de Bolsa, the behavior of the US currency in the second half of the year is also due to the fact that during this season the volume of dollar trading is characterized by a decrease than usually expected, which causes an increase in volatility, “especially this year , to the downside, not taking into account the likelihood that the Fed will cut its rates in 2024.”

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What will happen

Although Looking ahead, the external outlook looks a little clearer. At the very least, facing the possibility that the world’s major central banks will begin to adjust their interest rates, with the political issue largely ignored locally, the dollar is expected to rebound again.

Marisol Salamanca, a lecturer at the School of Business and International Development at the Politecnico Grancolombiano, argues that we will always have to be attentive to the Fed’s monetary policy decisions.

“At the local level, votes of confidence from the national government are critical, this has heightened expectations of economic growth expected to exceed 1.5 percent,” and adds that “the level of security and confidence that is provided to investors will play a critical role in the country’s economic equation.”

In your opinion, The currency could reach 4,200 pesos in the first half of the year.

Scotiabank Colpatria doesn’t see a very big jump in the currency in the short term, but they do see more volatility as some problems in the economy remain to be corrected.

Sergio Olarte, the organization’s chief economist, explains that such strong volatility expected next year will be due to markets waiting for central banks to start normalizing their rates, while on the domestic front he says that “In Colombia We expect the decline in inflation to consolidate, the Bank of the Republic to lower rates, as well as a slight recovery in economic activity.”

Alejandro Guerrero, currency adviser at Credicorp Capital, agrees. The dynamics of the dollar exchange rate will continue to largely depend on how the issue of country risks and government policies continue. (structural reforms, investment, confidence building) to know what to expect domestically on the currency front. “Current levels are similar to those seen in the presidential election, but volatility will continue.”

(Continue reading: Challenges for an economy that will grow below the Latin American average).

Credicorp Capital also expects the dollar to rise above P4,200 and recommends buying at current levels, while BBVA Research expects it to return to P4,450 as a result of various pressures on the currency. Among them is a reduction in percentage differences with developed economies.

Increased remittance flows are also putting pressure on the exchange rate.

Although the global economy was weaker in 2023 and only in Colombia, it is estimated to grow by about 1 percent this year in a best-case scenario. The amount of resources poured into the country each year by millions of Colombians living abroad, mainly in the United States, Spain and Chile, has not decreased.

Moreover, analysts estimate that a new record will be set on this front in 2023, the amount of which could well exceed $10 billion, which if exchanged at the average rate of 4,322 pesos, as they estimate it will be this year. they will talk about external income of about 43.2 billion pesos, a figure that exceeds Bogota’s budget for next year by 10 billion.

Achieving such an amount will not be difficult, given that excluding December, the country has already received almost $9.18 billion under this concept. In 2022, the country received approximately $9.429 million in remittances.

According to Marisol Salamanca, professor at the School of Business and International Development at the Polytechnic Institute of Grancolombiano, we cannot lose sight of this figure, which could also put downward pressure on the exchange rate.

“It is important to highlight the increase in the flow of remittances into Colombia, which brings in a significant amount of currencies, which marks the depreciation of the exchange rate,” he points out.

Although the lower price of the dollar means that whoever obtains these resources in the country receives less foreign exchange income, it is also true that This higher volume of remittances, in a time of slowing growth, represents a big help for people and for the economy as a whole. A recent analysis by Grupo Bancolombia even suggests that “remittances could serve as a counter-cyclical tool, especially if they could be channeled into sectors that promote savings and investment, such as the construction sector and the financial system.”

Moreover, he argues that “although these resources have led to positive changes in poverty alleviation and have supported households in coping with business cycle challenges, their potential remains to be explored.”

CARLOS ARTURO GARCIA M.
In X: @CarlosGarciaM66
artgar@eltiempo.com