Mounting Pressures To Spur Bolívar Devaluation
BMI View: Based on the fact that the Venezuelan government's bolívar-weakening policies continue apace, and the unofficial devaluation first implemented in December has failed to slow the currency's decline on the black market, we reiterate our view that an official devaluation will take place sometime this year. We have pencilled in a rate of VEF11.30/US$, implying a more substantial adjustment than indicated by our previous projections.
We have revised our year-end forecast for Venezuela's currency, and we expect a more substantial devaluation over the course of 2014, to VEF11.30/US$, compared to the current rate of VEF6.292/US$ and our previous projection of an adjustment to VEF9.000/US$. Predicting the exchange rate that authorities deem appropriate is obviously subject to significant risks, due to the uncertainty regarding policymaking in general and the unpredictability of the administration of President Nicolás Maduro in particular. However, we believe it is most likely that the official rate will be changed to match the Sicad rate administered by the Central Bank, which currently stands at about VEF11.30/US$, given the fact that authorities have already begun expanding the use of this rate for a number of industries, including tourism, oil investments, and certain types of food, among others.
We believe that existing measures have not been sufficient to satsify market demand for foreign exchange, and government claims that a devaluation is not forthcoming are increasingly untenable. Despite the expanded use of the Sicad rate, a policy which is effectively an unofficial devaluation, the value of the bolívar on the black market continues to plummet, reaching VEF75.57/US$ at the time of writing on February 5. This comes against a backdrop of a stepped-up crackdown on black market traders, whom Maduro characterises as unscrupulous speculators. Inflation continues to soar (likely to remain above 50% year-on-year over the coming months) due in large part to the rapidly-expanding money supply (which grew by an incredible 74.4% y-o-y in November, the most recent month for which data is available), and we expect the value of the bolívar to remain under pressure, a reality which policymakers will have to confront more substantively in the near future
|Black Market Depreciation Showing No Signs Of Slowing|
|Venezuela - Official & Unofficial Exchange Rates, VEF/US$|