Parallel Rate Under Pressure

October 2006 | Market Strategy

The Venezuelan parallel exchange rate has weakened by 12.0% over the past five months, declining from around VEB2,500.00/US$ in June to VEB2,800.00/US$ in October. The depreciation of the parallel rate is due, in our view, to the excess liquidity in the domestic economy, which is caused by the massive influx of petrodollars and the government's massive fiscal spending. Data provided by the BCV reveal that broad extended money supply (M3) expanded on average by 60.0% y-o-y in each month between January and August. As a result, headline inflation has soared and accelerated to 15.3% y-o-y in September, its highest level

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