The Colombian peso ended 2023 as one of the currencies in the world that has most closed its gap against the dollar. There were more than 988 pesos that the local currency discounted from the US currency in those 365 days, although at times the difference reached around 1,240 pesos, due to the volatility that prevailed for much of the year within hours of end.
The representative market rate (TRM) with which 2023 ends and begins next year is equal to 3,822.05 pesos. Not only is it the lowest of the year, but for more than 18 months, since the last time a similar level was seen was June 10 last year, when it reached 3,833.34 pesos, statistics show of the Bank of the Republic.
Even if the drop in the dollar came a little late for the thousands of Colombian travelers who in recent days have chosen a destination abroad to celebrate the new year, those who see the drop in the price of the currency as an opportunity to invest will have a few days of debt to do so, since what analysts see is that 2024 will continue to be characterized by strong volatility, a product of future adjustments in the main economies of the world, in particular in the United States, which could bring the currency back to levels close to 4,500 pesos.
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In addition to this, in 2023 the peso presented the best performance among Latin American currencies, its revaluation against the dollar exceeded 20.5%, placing it in first place among a group of 25 major currencies, among which there are, in addition to various Latin American ones such as the Mexican peso (12.85%) and the Brazilian real (8.20%), the Swiss franc (8.96%), the pound (4.84%) and the euro (3.65%).
The rates of the US central bank, the Federal Reserve (FED), the costs of raw materials and the fact that domestic investors have moderated the punishment of Colombia for the political issue, as has happened with other countries in the region, has strengthened Latin American currencies, especially the Colombian peso.
Economists from Grupo Alianza say that structural changes in the economy are always reflected in the foreign exchange market and cite, for example, that when the oil crisis occurred the currency reached 3,450 pesos, during the pandemic the jump was at 4,200 pesos and during the recent political crisis the exchange rate exceeded 5,000 pesos.
Felipe Campos, head of investments and strategy of the group, explains however that what is happening today in Colombia with the currency is in line with what is happening in Latin America and in the world, where the dollar has weakened significantly, due of the current global situation.
However, one factor that analysts strongly highlight is the change in the perception that foreign investors have regarding the domestic political context, where they believe that there will be no more structural changes, which has also been reflected in the decrease in country risk.
For Juan David Ballén, director of Analysis and Strategy at Casa de Bolsa, the behavior shown by the US currency in the last part of the year is also associated with the fact that during this season the dollar’s trading volume is characterized by a decline than usual, which increases volatility, “especially this year, downwards, discounting the possibility that the FED will reduce its rates in 2024”.
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What’s coming
Although the external outlook for next year seems a little clearer, at least in light of the possibility that the world’s major central banks will begin to adjust their interest rates, and at the local level the political issue is almost a given, a new dollar rebound.
Marisol Salamanca – professor at the School of Business and International Development at the Grancolombiano Polytechnic – maintains that we must always be careful about the Fed’s monetary policy decisions.
“At a local level, the voices of confidence from the national government are decisive, which adds to the expectations of economic growth, which should take off above 1.5%” and adds that “the level of security and confidence this that is provided to investors will play a crucial role in the economic equation of the country.”
According to him, the currency could reach 4,200 pesos in the first half of the year.
At Scotiabank Colpatria they don’t see a big near-term jump in the currency, but they see great volatility as several economic issues remain to be ironed out.
Sergio Olarte, chief economist of the institution, explains that this strong volatility expected for next year will be due to the fact that the markets are waiting for central banks to start normalizing their rates, while on the domestic front he states that “In Colombia we are waiting for consolidate the decline in inflation, the lowering of the Bank of the Republic’s rates, as well as a small recovery in economic activity”.
Something that Alejandro Guerrero, Currency Associate of Credicorp Capital, agrees with, for whom the trend of the dollar will continue to depend a lot on how the issue of country risk persists and on government policies (structural reforms, investments, generation of confidence ) to find out what can be expected internally on the exchange front. “Current levels are similar to those seen in the presidential election, but volatility will remain.”
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Credicorp Capital also expects the dollar to rise above 4,200 pesos, which is why they recommend buying at current levels, while BBVA Research expects a return to 4,450 pesos, due to various pressures on the currency. Among these, the reduction of interest differentials with developed economies.
An increased flow of remittances also puts pressure on the exchange rate
Although the global economy in 2023 was characterized by a weakening and only in Colombia it is estimated that this year it will grow by about 1% – in the best case scenario – the volume of resources sent to the country every year by millions of the number of Colombians settling abroad has decreased, especially in the United States, Spain and Chile.
Furthermore, analysts estimate that in 2023 a new record will be set on this front, with a figure that could exceed 10,000 million dollars, which if they were traded at an average rate of 4,322 pesos, as they estimate to be this year, would be of external revenues of the order of 43.2 billion pesos, a figure that exceeds Bogota’s budget for next year by 10 billion.
This amount will not be difficult to achieve if you take into account that, without December data, almost $9.18 billion had already entered the country for this project. During 2022, the country received remittances of approximately $9,429 million.
It is important to highlight the increase in the flow of remittances to Colombia, which causes the entry of a significant number of currencies, which marks the fall of the exchange rate.
For Marisol Salamanca, professor of the School of Business and International Development of the Polytechnic of Grancolombiano, we cannot lose sight of this data, which could also exert downward pressure on the exchange rate.
“It is important to highlight the increase in the flow of remittances to Colombia, which brings a significant number of currencies that mark the decrease in the exchange rate,” he emphasizes.
Although a lower price of the dollar means that those who receive these resources in the country obtain less exchange income, it is also true that this greater volume of remittances, in a context of deceleration, constitutes a great help for people and for the economy. general. A recent analysis by Grupo Bancolombia even indicates that “remittances could serve as a counter-cyclical tool, especially if they could be channeled into sectors that promote savings and investment, such as the construction sector and the financial system.”
Furthermore, it argues that “although these resources have generated positive changes in terms of poverty reduction and have served to support families to overcome economic cycle challenges, their potential has yet to be explored.”
CARLOS ARTURO GARCÍA M.
In X: @CarlosGarciaM66
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2023-12-31 03:56:32
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