CARACAS, Nov 23 (Reuters) – Venezuela's effort to curb high inflation by stabilizing exchange rates is becoming less effective as the local bolivar currency slips in value against the dollar, analysts said on Wednesday.
For months, President Nicolas Maduro's administration has sought to fight inflation by anchoring the bolivar's exchange rate. It has increased the supply of foreign currency cash in local banks and limited the expansion of credit and public spending.
But that strategy is no longer working, analysts said.
In recent weeks, the Venezuelan Central Bank has sold fewer dollars and the government has increased spending, allowing the exchange rate to slide to 10.23 bolivars per dollar by Wednesday, according to the central bank's figures.
The local currency has depreciated 17% since October, and 55% so far this year. Last month, the country's monthly inflation was seen at 6.2%.
"The strategy of lowering prices with the exchange rate frozen is not working," said economist Jose Guerra, who predicted that inflation in November could possibly return to double digits.
At the end of 2021, inflation began to slow down but year-on-year inflation in Venezuela still stands at 155%, among the highest in the Latin American region, official data shows.
"The exchange environment lives with a fragile balance. Its stability depends on the amount of dollars that the Central Bank injects in an environment in which the government spends more in bolivars," said Luis Arturo Barcenas, economist at consultancy Ecoanalitica.
"The fragile model is imploding," he added.
The issuer's weekly placement of foreign currency in banks has been around $50 million, while a month ago it was $80 million to $100 million, according to estimates by local consultancy Sintesis Financiera.
Both economists said the government may be fine with letting the exchange rate slide a little more, if it allows them to spend again.
The central bank did not immediately respond to a request for comment.
Our Standards: The Thomson Reuters Trust Principles.
Asian stocks were trying get into a festive mood on Wednesday, and managed small gains with even Japan's Nikkei lifting off a two-month low it hit following the Bank of Japan's surprise decision to loosen its tight leash on government bond yields.
Reuters, the news and media division of Thomson Reuters, is the world’s largest multimedia news provider, reaching billions of people worldwide every day. Reuters provides business, financial, national and international news to professionals via desktop terminals, the world's media organizations, industry events and directly to consumers.
Build the strongest argument relying on authoritative content, attorney-editor expertise, and industry defining technology.
The most comprehensive solution to manage all your complex and ever-expanding tax and compliance needs.
The industry leader for online information for tax, accounting and finance professionals.
Access unmatched financial data, news and content in a highly-customised workflow experience on desktop, web and mobile.
Browse an unrivalled portfolio of real-time and historical market data and insights from worldwide sources and experts.
Screen for heightened risk individual and entities globally to help uncover hidden risks in business relationships and human networks.
All quotes delayed a minimum of 15 minutes. See here for a complete list of exchanges and delays.
© 2022 Reuters. All rights reserved

source