Bolivar’s crash breaks rare stretch of stability

Bloomberg

The bolivar is plummeting, breaking a rare stretch of stability for Venezuela’s battered currency.
It has lost a third of its value so far this month, hitting 9.08 bolivars per US dollar on the parallel exchange market, according to data compiled by Bloomberg. That’s the steepest monthly decline since January 2021.
Controlling the exchange rate has been a key ingredient of President Nicolas Maduro’s strategy to halt a four-year hyperinflation bout, which ended in December. The currency, which had consistently lost nearly all of its value over the years, was relatively stable since a currency redenomination in October as the central bank poured hundreds of millions of dollars into the exchange market to keep it in check.
The bolivar started to show weakness in the parallel market at the end of last month, though most of the losses have occurred this week.
The spread between the parallel rate and the official central bank rate of 7 bolivars per dollar is now the widest since the October, when six zeros were slashed from the currency in the redenomination.
The central bank is selling less FX to the market while the government has increased spending of bolivars after reaching pay agreements with labor unions, fueling the depreciation.
Monthly sales have been dropping steadily since June, falling to $233 million so far in August, the lowest in five months, according to central bank data seen by Bloomberg. The trend “shows less willingness, or less capacity, to continue to intervene in the market with the same intensity,” said Tamara Herrera, director of financial analysis firm Sintesis Financiera.
The bank this week for the first time auctioned dollars to the market, according to a document seen by Bloomberg. It normally sells them directly to banks. It has also improved the terms of short-term bolivar bonds, trying to lure investors into buying them instead of greenbacks.
The weakness in the exchange market may alter the recently achieved price stability, boasted by the government as one of the main successes of its economic policy. Monthly inflation posted double-digit figures in June for the first time in nine months. Although it decelerated in July, some are now questioning the government’s ability to keep prices in check.