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Currency depreciation accelerates again amid concerns over economy
After a brief respite in July, when the nominal monthly depreciation of
the bolivar reached just 0.8%, the currency resumed its upward
trajectory. In August, the bolivar depreciated 5.9% to reach 1,411
bolivares to the US$. With the August depreciation, the currency
has now lost 45.2% of its value since the decision on 13 February to let
the currency float. The bolivar weakened by an additional 2.5%
through 6 September, closing at 1,447 to the US$. The combination of
continued political uncertainty, mounting uncertainty about the regional
contagion from Brazil and economic stagnation continue to be key drivers
behind the weakening of the bolivar. Participants have not revised
their forecasts to reflect the recent weakening in the currency and remain
confident that the latest softening will subside. Furthermore, the
currency is expected to stabilize next year with the annual depreciation
rate slowing from this year’s
rate.
Inflation subdued due to lack of domestic
demand
Consumer prices rose 2.4% in August, down slightly from the 3.6% monthly
variation in July. The August increase raised annual inflation from 22.0%
in July to 24.2% in August. Housing (5.0%), food/non-alcoholic beverages
(3.6%) and transportation (3.4%) experienced the strongest monthly price
increases. Among all of the major categories, only communications and
education services were under the 1% monthly increase. The acceleration in
the annual inflation rate is the result of the currency depreciation.
However, so far, this effect remains contained by low domestic demand,
which is not enabling businesses to transfer higher prices directly to
consumers. Participants have adjusted inflation forecasts to reflect
subdued domestic demand with the annual increase in consumer prices now
expected to reach 30.8%, which is down 0.3 percentage points from last
month. The Consensus still remains well above the government’s more
optimistic 26.3% for this year. The government’s inflation estimate of 15%
to 18% for next year also remains well below panellists’ projection, which
is up 1.2 percentage points from last month.
External accounts deteriorate further on
oil slump
In the second quarter, the current account
surplus reached US$ 1.7 billion, which was up from US$ 77 million in the
first quarter. As a result, the annual current account surplus rose to US$
1.9 billion. The key force behind the current account improvement was the
trade balance, which rose from a US$ 1.9 billion surplus to US$ 3.3
billion. The services balance deficit decreased modestly from US$ 719
million to US$ 694 million. The capital account deficit narrowed from US$
2.1 billion to US$ 1.9 billion but still exceeded the surplus in the
current account. As a result, international reserves declined by US$ 74
million. Participants expect the current account surplus to widen further
this year, as a result of further widening of the trade balance surplus.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Venezuela. For more details please click here.
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