The Colombian peso is one of the best-performing currencies in the world. In recent days, it has continued to appreciate and the exchange rate is now trading below 3,300 pesos, a price not seen for more than six years.
Specifically, the Market Representative Rate (TRM) governing this Wednesday is 3,252.11 pesos. You have to go back to the first days of January 2020, that is, before the covid-19 pandemic to see similar values.
Various market analysts agree that the revaluation of the Colombian peso is due to fiscal announcements that have been positively made by the incoming government of Abelardo de la Espriella and that could materialize after his inauguration on August 7.
For example, the designated Minister of Finance, Miguel Gómez, announced that from that date he wants to carry out a freeze on the General National Budget to see how much can be cut. His goal is to ‘cut’ 60 trillion pesos next year to solve the fiscal situation the country is going through.
“The Colombian peso is the strongest currency in recent months. Since the first round of elections it has appreciated by about 12 percent and, according to our estimates, it is still below what is the fair value or the one consistent with the macroeconomic fundamentals currently seen for the economy. We perceive that fiscal challenges are still quite relevant, beyond a somewhat more responsible and committed vision to start cleaning up the finances shown by the incoming government,” highlighted José Luis Mojica, macroeconomic manager of the Economic Research team at Bancolombia.
For Felipe Campos, Investment and Strategy Manager at Alianza Valores and Fiduciaria, the overreaction the dollar is having is based on political expectations that in some cases could materialize, such as a major spending cut or a very strong redirection in the oil and fracking sector.
“Given that there are expectations that cannot be determined in the short term, for me it is difficult for the dollar to rebound aggressively. At some point, it would, but returning to 3,700 pesos will take a long time,” he said.
Also, from the Davibank team, they pointed out that the dollar’s fall is due to a regional trend amid a resurgence of international conflicts, as well as the local expectation that the Banco de la República’s interest rates will remain high for a good time.
“After the inflation data (it rose to 6.14 percent in June) the expectation that the Issuer has to raise rates more is reinforced, which continues to feed investors’ appetite,” they indicated.
Is it time to buy dollars?
Given this situation in which the dollar continues to fall day by day in Colombia, it is relevant to ask whether it is time to buy the US currency or if it could be better to wait.
In this regard, Mojica considers that although there is optimism with the incoming government’s announcements, the adjustments the country needs are so significant that the currency could have a correction in the coming months toward levels closer to 3,500 or 3,600 pesos. Therefore, he says he does see it attractive to buy dollars at this moment.
“We believe these levels are attractive to buy dollars. They look quite cheap and should be converging in the coming months to an exchange rate much more consistent with 3,500 or 3,600 pesos, in light of the drivers that have been cooked up in the macroeconomic program and that continue to be seen as the most relevant challenges our economy will face in the coming years,” he said.
From the Davibank team, they consider that although it is difficult to think that the exchange rate can continue downward, still some optimism could be seen from the markets and remain at this level for some additional time.
“I think that after the elections, Colombia won the vote of confidence from international investors. The independence of the Central Bank is being strongly supported and that can guarantee for a good time that we have constructive flows toward our capital market,” they stated.
Additionally, they mentioned that this low dollar could benefit those who want to buy dollars because they will go on vacation abroad. “For those who have short-term expenses, this is a very good opportunity to acquire dollars,” they said.
According to Campos, his expectation is that the dollar will move next year between 2,800 and 3,200 pesos and everything within that range can be attractive. However, he emphasizes that his investment should always be as diversification.
“In the long term its movement would be flat or downward. Really its value is that it diversifies portfolios and acts as life insurance. The important thing is to have a diversified portfolio with stocks, CDs at 12 percent, and a home that I believe will recover,” he said.