The price of the dollar in Colombia: five answers to the reason for its rise – sectors – the economy

The dollar reached a new historical record in the Colombian interbank market. During the last day of Friday, the US currency reached a maximum of 4,209.99 pesos, a price never seen before, and based on today’s average, the representative market rate (TRM) in effect until Tuesday is the highest ever , from 4,198.77 pesos.

The dollar was rising all over the world, and there are those who consider that all currencies in Latin America will show currency depreciation in the coming weeks due to international factors affecting its export products.

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At the moment, it seems that everything we will have an era with an expensive dollar as long as these economic phenomena are not resolved around the world,” Luis Fernando Mejia, Fedesarrollo Director.

According to Anders Langbeck, Executive Director of Economic Studies at Grupo Bolívar, If an analysis is carried out at the global level, then a clear behavior of all currencies depreciating in relation to the dollar can be observed.

The trend is manifested in different markets and not only in the country.
However, the international trend in recent days in Colombia coupled with the election results, also pressured the currency.

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1. Why is the dollar rising?

In summarizing, The forces that have been driving the dollar in the world start from the interest rate increases by the Federal Reserve (Federal Reserve Bank, the central bank of the United States), which was raised to curb price hikes in that country.

When interest rates rise, consumption and investment slow, raising fears that the United States will enter a recession, that is, the country will produce less and reduce employment.

The possibility of lower production in a power such as the United States anticipates the need for fewer raw materials such as oil. The above causes their prices to fall and the currencies of the countries producing raw materials to weaken, and this is the case of Colombia, which exports crude oil.

Likewise, the possibility of a recession also boosts the dollar as it is seen as a haven currency globally.

According to Luis Fernando Mejia, director of Fedesarrollo, “40 percent of our exports depend on oil and its derivatives, and therefore they are reflected in the price of the dollar.”

For his part, Philip Campos, director of economic research at Grupo Alianza, said that in the complex environment, policy has been embedded in the dollar’s price, but noted that the currency path will continue to be dictated by oil. and the global situation.

a) yes, In addition to international factors, the dollar rate in Colombia got an additional boost due to the election result. Concern about the country’s electoral issue has been coming in for months, says Langebeck, which has generated fear in many economic agents and could have an impact on the value of the currency.

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According to an analysis by Bloomberg, “Colombia’s election of Gustavo Petro, the nation’s first left-wing president, has caused the liquidation of local assets and pushed the peso” to record lows.

Mejia points out that in the face of election uncertainty, there is volatility, but he sees that with the appointment of the new finance minister, José Antonio Ocampo, this kind of phenomenon could subside. But he believes that elements are still missing within the next government that could contribute to local events that help curb the dollar’s rise.

However, Bloomberg analysts say that “not even the appointment of a well-known economist and Former Central Bank Co-Director José Antonio Ocampo as Finance Minister was able this week to reverse the negative perception.”

2. How long will it rise?

If the above phenomena, economic uncertainty and increased oil prices continue, the dollar will continue to rise. Therefore, the rise of the dollar becomes an incentive for investors to protect their money in the United States and not in emerging economies, as is the case in Colombia.

“It is difficult to speculate because these phenomena are reversible, but at the moment it all seems as if we are going to witness an era with an expensive dollar while these economic phenomena are not resolved around the world,” Mejia added.

for Langebaek, if the recession is confirmed in the United States, monetary policy will certainly have to be adjusted in this country. So far there have been changes in interest rates, and the market has taken these signals as the possibility that these increases will continue.

Thus, if the economic activity of this country enters a recession, these rates will have to fall again, which will help to calm the rise of the dollar at the global level and, consequently, to the appreciation of the currencies of emerging countries.

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3. How does it affect the country?

The repercussions of dollar behavior can affect both. Ordinary Colombians as well as businessmen.

For example, for those exporters, this is good news because as the dollar gets more expensive, those who sell their products abroad get higher salaries. On the contrary, it is a challenge for importers, as they have to buy in dollars and raise the selling price in the country.

For households, there are imported products that will have a higher cost, for example, appliances or cars.

There are also indirect repercussions in the high prices of products used at home. This is the case for fertilizers, as if their import prices go up, the value of the foodstuffs increases as well, affecting the pockets of families.

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This phenomenon also affects entrepreneurs who have dollar debts
Because they have to pay more money. “Colombia is usually an importer of wheat, maize or barley, so these are products whose prices will rise as well,” Langebeck said.

However, he made it clear that this is not an immediate effect because importers have stocks that will cover Colombians’ orders for some time, offsetting slightly for the moment when the peso is devalued in the country.

4. Is the government affected?

The government issues public debt abroad, like large corporations, which means that when the dollar rises, this means that the value of the debt in peso also increases. The above means that the outstanding principal increases and so does what is being paid as interest.

According to Langebaek, if one takes into account that in 2020 and 2021 the national government has significantly increased its dollar debt, greater exposure to changes in that currency is created, so this trend can also negatively affect.

5. Are there opportunities?

As for the net balance, for importers or exporters, in the current context it is not good because the country has a relatively high trade deficit (imports outnumber exports) and the dollar has risen for several months, which for Mejía, it was not possible to benefit from the export side . But he considers that entrepreneurs find at this time an opportunity to focus on the foreign market, Because it is increasingly profitable to export and direct products abroad.

In addition, in the short term, there are negative effects on the balance, but we must also take into account that the products that Colombia produces are very cheap, so they can increase their export levels. This could also lead to an increase in tourism in the country, as visitors can see an opportunity to travel here with cheap currency, Langebeck explained.

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