Yesterday, the President-elect, Gustavo Petro Urrego, who also received an exchange rate of over $4,337 following the Colombian currency devalued to $1,439 in the last four years. This, if one takes into account that on August 7, 2018, when Iván Duque began to govern, a dollar was worth $2,898.
The arrival of the new president to power, and even since he was a candidate, has generated questions regarding the reforms he may adopt, regarding whether he will moderate his speech and regarding the impact that his projects have on the official rate. However, Petro has made alliances with so many parties that it will likely be forced to tone down his program to keep them all on board, said Sergio Guzmán, director of Colombia Risk Analysis.
“The signal they are sending us is that the new government wants to act under the existing rules of the game, and that although it is looking for certain changes, that generates some calm in terms of the markets,” said Jackeline Piraján, economist at Scotiabank Colpatria .
But what levels might the price of the US currency reach? Analysts agree that for the remainder of the year, the ceiling of the dollar would be $4,700, following having reached a maximum of $4,627 in July, while the minimum would be $4,200, with high volatility.
With the tax reform, in charge of the new Finance Minister, José Antonio Ocampo, it will be sought to deal with the higher social expenses.
“What has been discussed is that there will be a large moderation in the amount, for example. In the campaign there was talk of $50 billion, but they have already said that in the first year they would seek $25 billion as a goal, and normally there are cuts in Congress. In addition, the message of fiscal responsibility, so that the spending program can be financed from higher tax collection and not from greater indebtedness, would be positive and well received by the markets,” said Julio César Romero, chief economist at Corficolombiana .
In the opposite case, some reforms that might negatively affect the rise of the currency are related to pensions and hydrocarbons. If actions are taken to suspend oil exploration, as well as fracking pilots, an announcement that the new Environment Minister has already pointed out, analysts agree on the repercussions for the exchange rate.
Alejandro Guerrero, foreign exchange associate at Credicorp Capital, said that it will be important if Brent, Colombia’s benchmark crude oil, remains above US$90, noting that Colombia is an oil exporter. In that sense, “starting to have reforms or more regulations in this area might have repercussions on inflows and direct investments in the mining-energy sector. Given the uncertainty, we continue to prefer long positions in the dollar, with a maximum of $4,700, and a viable minimum of $4,200 at the end of the year”.
Likewise, experts point out that the exchange rate is going to be more volatile than what the country was used to seeing, with strong ups and downs.
In summary, although Colombia replicated the increase in dollar After electing a left-wing candidate, as happened in Chile and Peru, the possibility of this continuing will depend on a moderate speech by the president, as well as international factors.
The risk of a global recession following the increase in interest rates by central banks to combat inflation, the restrictions in some countries such as China, due to outbreaks of covid-19, the geopolitical crisis between Russia and Ukraine, and the High oil prices continue to be determining factors for market investment decisions.
“The dollar king will not relinquish his crown any time soon, and as concerns regarding the global economic slowdown intensify. The interest rate spread remains the backbone of the strong dollar outlook and looks set to continue to widen towards the end of the year,” said Edward Moya, senior market analyst at Oanda.
