Exchange rate nears RD$45, and interest rate goes up
SANTO DOMINGO. Whatever the degree of compliance with the monetary measures announced by the Governor of the Central Bank, Hector Valdez Albizu, on 10 February, might be, their results appear to be an increase in the interest rate, and the exchange rate which, although slowing down, is near the nervous level of RD$45 per dollar.
Yesterday, 17 February, the average price of the sale of dollars over-the-counter at the financial entities and exchange houses was RD$44.90, according to the results of a survey which the Central Bank published on its webpage.
This price is above the RD$44.86 of Friday, 6 February, the day that the worry by the Central Bank was unleashed regarding the tendency that they saw in the exchange market.
Compared with the price of January 2, the depreciation of the peso is 1.3% in relation to the prices of the over-the-counter sales that were carried out by the financial entities yesterday.
On 10 February, Hector Valdez Albizu announced the injection into the exchange market of between US$150 million and US$200 million, with the objective of halting the increase in the exchange rate.
“Whoever is betting on devaluation will lose his money, since we are being vigilant, and we will take the measures that are necessary in order to guarantee price stability and the relative stability of the exchange rate,” the governor of the Central Bank said that day. The official referred to supposed “rumors” regarding the accumulation of hard currency by the commercial banks, with the idea of compensating the loss of earnings caused by the reduction of the interest rates on credit cards.
That same day, the official also announced an increase in the rate of the legal reserves by two percentage points, which reduces the cash flow of the banks by more than RD$14 billion. What was the logic? Fewer pesos, means less capacity to buy dollars.
But the increase in the legal reserve also means an increase in the interest rates which the banks collect for loans that they offer, which is an effect that initially the official minimized. But later he recognized it: “we have made our calculations, and we think that the effect will be in any case less prejudicial for the people, the society, for the economic agents, and for those that live on salaries, than if the exchange rate does not go up 100 points above what it had last year, than if the interest rates moves one or two points.”
Besides the banking entities, the exchange houses and remittance agencies also operate in the exchange market. As of December 2014, the Monetary Board authorized 73 entities of this type to operate in the currency exchange market.
In 2003, the participation of these entities in the market operations of hard currency was close to 50%, but they have been losing market share in a systematic form, until they represented 21% of this market in 2014. In that year the net operations of hard currency (which exclude the operations between the entities which deal with hard currency) reached a volume of very close to US$33 billion.
This market has been moving towards the control by the banks, which is different than some years ago, since they are the only entities that the Central Bank takes into account when it decides to intervene in the exchange market.
Regarding this, Carlos Pla, the President of the Association of Exchange Agents (Adocambio) says: “It has been a process of little transparency in which we are not informed, when the interventions are carried out.”
The businessman called for “a balanced process” in order that there is no competitive advantage between companies authorized by the authorities themselves.
The companies which Adocambio represents also have to deal with the refusal by the foreign corresponding banks as well as local banks to create accounts for them, as a result of the rules imposed by international authorities against money laundering, which results costly to apply. For this cost, the innocent pay for the sinners.
The results are a growing tendency towards informality by many of the exchange agencies, who prefer to give up their licenses, creating a black market” which operates in the daylight, in their businesses in the city, and with a discreet tolerance by the authorities.
February 18, 2015
Category: DR News |