The Colombian peso ended 2023 as one of the world currencies that narrowed its distance against the dollar the most. Over those 365 days the local currency had a discount of more than 988 pesos to the US currency, although at times the difference reached almost 1,240 pesos, due to the volatility that prevailed throughout much of the year that followed. Only a few hours left till the end.
(We recommend you to read: Why is unemployment rising in Colombia while employers are unable to find workers?).
The representative market rate (TRM) with which 2023 ends and the next year begins, was 3,822.05 pesos. This is not only the lowest level of the year, but also in more than 18 months, as a similar level was last seen on June 10 last year, when it reached 3,833.34 pesos, according to Bank of the Republic data. Get to know from.
Although the fall in the dollar came a little late for the thousands of Colombian travelers who have chosen a place abroad to celebrate the New Year these days, those who see the decline in the currency’s price as an investment opportunity have There will be some options. There are still a few days to do this, because what analysts see is that 2024 will be marked by strong volatility, a product of the coming adjustment in the world’s main economies, especially the United States, which Can move forward. The currency will return to levels around 4,500 pesos.
(You may be interested in: ‘There is a slowdown in both public and private investment’: Fedesarolo)
Other than this, Peso presented the best performance among Latin American currencies in 2023, Its revaluation against the dollar reached more than 20.5 percent, placing it in first place among a group of 25 major currencies, which include, in addition to several Latin American currencies, such as the Mexican peso (12.85 percent) and the Brazilian real (8.20 percent). per cent), Swiss franc (8.96 per cent), pound sterling (4.84 per cent) and euro (3.65 per cent).
Rates of the Federal Reserve (FED), the central bank of the United States, the cost of raw materials and the fact that domestic investors have reduced Colombia’s punishment for the political issue, as has happened with other countries in the region. , Latin American currencies, especially the Colombian peso, have strengthened.
Economists at Grupo Alianza say that structural changes in the economy are always reflected in the exchange market and that, for example, when the oil crisis occurred the currency reached 3,450 pesos, during the pandemic it surged to 4,200 pesos and during the recent The political crisis caused the exchange rate to exceed 5,000 pesos.
However, Felipe Campos, investment and strategy manager of said group, points out that what is happening with the currency in Colombia today is in line with what is happening in Latin America and the world, where the dollar has weakened significantly. global situation.
However, One factor that analysts have strongly highlighted is the change in foreign investors’ perception regarding the internal political context. Where he believes that now there will be no structural changes, the effect of which has also been seen in the form of risk reduction in the country.
For Juan David Bullen, 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 linked to the fact that the dollar is characterized by low trading volumes during this season. exceeded expectations. The general trend, which leads to increased volatility, is “to the downside, in particular, this year, reducing the likelihood that the Fed will lower its rates in 2024.”
(Also: ‘This is an increase made to please labor unions’: Fenalco on minimum wage).
Although Looking ahead to the next year, the external outlook looks a little clearer, At least in the face of the possibility that the world’s main central banks will begin to adjust their interest rates, and the political issue at the local level has almost been discounted, the dollar is expected to see a new surge.
Marisol Salamanca, a teacher at the School of Business and International Development of the GranColombiano Polytechnic, says that we always have to be attentive to the Fed’s monetary policy decisions.
“At the local level, the voices of confidence from the national government are decisive, this has raised expectations for economic growth, which is expected to rise above 1.5 percent,” and adds that “the level of security and confidence is providing investors who Provided that it will play an important role in the economic equation of the country.
in your opinion, The currency could reach 4,200 pesos in the first half.
At Scotiabank Colpatria he doesn’t see a huge upside for the currency in the short term, but he does see a lot of volatility as many issues remain to be adjusted in the economy.
Sergio Olarte, chief economist of the unit, explains that this strong volatility expected next year will be due to the fact that the markets are waiting for when the central banks will start to normalize their rates, while on the domestic front he says that “in Colombia we have inflation. We look forward to the consolidation of the decline in economic activity, along with the Bank of the Republic’s rate cut and some improvement in economic activity.
Something with which Alejandro Guerrero, currency associate at Credicorp Capital, agrees, for The performance of the dollar will largely depend on the risk issue in the country and the government’s policies. (Structural reforms, investment, creation of confidence) To know what can be expected internally on the exchange front. “Current levels are similar to those seen in the presidential elections, but volatility will remain.”
(Keep reading: Challenges of an economy that will grow below the Latin American average).
At Credicorp Capital they also expect the dollar to rise above 4,200 pesos, which is why they recommend buying at current levels, while at BBVA Research they expect it to return to 4,450 pesos as a result of various pressures on the currency. Will go. These include a reduction in the interest gap with developed economies.
Higher inflow of remittances also puts pressure on the exchange rate
Although 2023 was characterized by a weakening of the global economy and only in Colombia it is projected that it will grow by about 1 percent this year – under the best scenarios -, The amount of resources sent to the country every year by millions of Colombians living abroad, mainly in the United States, Spain and Chile, did not decrease.
In addition, analysts estimate that this 2023 a new record will be set on that front, which could exceed 10,000 million dollars, that is if they are exchanged at an average rate of 4,322 pesos, as their It is estimated that this year, external income will amount to approximately 43.2 billion pesos, a figure 10 billion more than Bogotá’s budget for next year.
Achieving this amount would not be difficult if it is taken into account that, without December data, about $9.18 billion had already come into the country thanks to this concept. Throughout 2022, the country received remittances of approximately $9,429 million.
It is important to emphasize the increase in the flow of remittances to Colombia, causing a large number of currencies to enter, which symbolizes the decline in the exchange rate.
For Marisol Salamanca, professor at the School of Business and International Development at the GranColombiano Polytechnic, we cannot ignore that figure, which could also put downward pressure on the exchange rate.
“It is important to emphasize the increase in the flow of remittances to Colombia, which brings in a significant number of currencies that reflect a decrease in the exchange rate,” he explained.
Although the low value of the dollar means that whoever acquires these resources in the country receives less exchange income, it is also true that In the context of recession, this large volume of remittances is a great help to the people and the economy in general. A recent analysis by Grupo Bancolombia also indicates that “remittances can serve as a countercyclical instrument, especially if they can be sent to sectors that promote savings and investment, such as the construction sector and financial system.”
Furthermore, they say that “although these resources have generated positive changes in terms of poverty alleviation and served as support for households to overcome the challenges of the economic cycle, their potential remains unrealized.” Could go.”
Carlos Arturo Garcia M.
In X: @carlosgarciam66