Exchange rate under pressure: reserves fall by US$527 million
SANTO DOMINGO. On 16 January, the governor of the Central Bank, Hector Valdez Albizu, reported that the gross international reserves of the Central Bank climbed to US$4.7 billion, a number that by Dominican standards means “historic highs.”
But by the end of that month, this number had fallen by US$527 million
At par, the exchange rate peso/dollar has been sliding, slowly but steadily, upwards, until it crossed the RD$43 peso barrier. The national currency has depreciated nearly 0.8% in a month.
Nevertheless, the director of the International Department of the Central Bank, the economist Frank Fuentes, says he feels that these events are normal. He explained that the decrease in the reserves are the result of the withdrawal at the beginning of the year the government takes from Banco de Reservas in order “to deal with their financial obligations.” And he attributed the slide in the exchange rate to the “seasonal reasons” of the Dominican economy in the first quarter of each year.
The intervention of the Central Bank in the exchange market “are normal operations” that the economist defines as those whose amounts are US$5 million, US$10 million or US$15 million.
The fall in the reserves of the Central Bank coincided with the expectations created by the meeting of the Federal Reserve, which took place last Tuesday and Wednesday and which resulted in a new cutback in the monetary stimulation in the United States economy.
It also coincided with the departure of Ben Bernanke from the Fed (who was the man who implemented the stimulus package) and his substitution by Janet Yellen (who favors the cutbacks). These expectations impacted the emerging markets in January, causing instability in exchange markets, depreciations of their currencies and loss of reserves in their central banks.
Over the last weeks, the Central Bank has intervened at least three times with the injection, in three phases, of a total of US$15 million in the operations that are carried out by exchange agencies, according to Carlos Pla, the president of the Dominican Association of Exchange Agents (Adocambio).
The amount of the dollars going through the commercial banks is not known although they tend to be larger.
On 30 January 2014, after their meeting of monetary policy, the Central Bank decided to keep their reference rate at 6.25%. This rate has been in force since 28 August 2013. Before this the rate was 4.25% and the increase was decided upon in the context of the international situation in which “the flows of international capital are leaving the emerging economies, producing a depreciation nearly generalized in the currencies of these countries.” Until September 2013, which is when the statistics on the balance of payments are cut off, the foreign investment of the portfolio (international capital) in the country was US$1.36 billion.
Category: DR News |