Venezuela: Venezuelan bolivar depreciates sharply in November
The Venezuelan bolivar (VED) has fallen by over 25% against the U.S. dollar over the last month—reaching record lows—and 60.7% year to date. On 2 December, the VED ended the day at 11.69 per USD, while the parallel market rate on the same day was VED 13.45 per USD—marking a more than 47% plunge over the previous month. The easing of public spending restrictions and lower injections of USD into local banks from the Central Bank have weighed on the currency recently.
The government has increased spending on a variety of bonuses and handouts recently, which has in turn translated into more local currency in circulation. This is fueling inflation, which rebounded from 114% in August—the lowest reading since July 2015—to 156% in October, further prompting households to get rid of a currency that is rapidly losing value.
On top of this, the Central Bank recently cut the amount of USD injected into the banking system: It is estimated that the weekly assignment of USD to local banks has fallen from around USD 80-100 million in October to less than USD 50 million in November, making the currency scarcer. This reduction in dollar inflows is due to a variety of reasons, including a recent decline in the price of oil—following a spike in prices due to the war in Ukraine—and reduced oil production amid a lack of investment.
Going forward, our panelists expect the VED to continue depreciating. In the short term, a further loosening of the government’s purse strings due to year-end payments to public employees looks set to put additional downward pressure on the currency. In the longer term, monetary financing of the fiscal deficit will continue to be the main driver of the protracted weakening of the currency.