Less pesos to buy a dollar

Dolores

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The Dominican peso has strengthened almost 5% against the dollar so far this year. As reported in Diario Libre, in the first two months of 2022, the US currency fell RD$2.84 against the national currency. The appreciation is happening at a time when inflation is on the rise and is worsening now with the war conflict in Eastern Europe.

Diario Libre reports that the US currency went from an average sale in the spot market last January of RD$57.83 to RD$54.99 on the first day of March 2022, representing a decrease of RD$2.84, equivalent to a revaluation of the peso of 4.9%, according to the records of the Central Bank (BCRD).

Economist Francisco Tavarez told Diario Libre that the expansionary monetary policy carried out by the United States is causing its currency to depreciate around the world. This happened at a time when remittances and tourism were having record highs...

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Lobo Tropical

Silver
Aug 21, 2010
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Is this supposed to be feel good news?
Is the DR going to pay down debt?
The World currency will remain the USD.
Net effect Dominicans are losing and paying more.

Government Debt in Dominican Republic decreased to 59362.30 USD Million in July from 59648.60 USD Million in June of 2021​

Dominican Republic - Credit Rating at 40.00
Dominican Republic Remittances at 759.27 USD Million
Dominican Republic Core Consumer Prices at 110.75 points
Dominican Republic Core Inflation Rate at 7.00 percent
Dominican Republic CPI Housing Utilities at 114.79 points
Dominican Republic CPI Transportation at 125.38 points
Dominican Republic Consumer Price Index (CPI) at 114.60 points
Dominican Republic Food Inflation at 9.30 percent
Dominican Republic Inflation Rate at 8.70 percent
Dominican Republic Inflation Rate MoM at 1.20 percent



 
Jan 9, 2004
10,251
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The peso has likely all but run its course of strengthening against the dollar.

The combination of government borrowings, remittances, price of gold, and the renewed flow of tourist dollars has helped Abinader keep the peso strong...........up to this point. International reserves on the balance sheet of the Banco Central continue to be strong..............up to this point.

The significant headwinds working against the peso near term are in no particular order, food and commodity prices, oil, reductions in remittances, possible reductions in tourist dollars, and the largest headwind of all..............interest rate hikes in the US beginning this month and likely continuing throughout 2022.

Interest rate hikes in the US, will cause issues for the peso almost immediately. Abinader front ran those hikes by raising rates in the DR several times in the last few months. This in an attempt to soften the inevitable blow to the peso/dollar relationship.

And the blow will likely not come in noticeable fashion...............but it will come.

President Abinader will need a real strategy going forward to keep the peso from slipping too quickly. Will he continue to tighten interest rates in lockstep with the US..............thereby choking off growth to the economy? No easy answers there. One bright spot might be tourism diverted from Europe due to the Russia/Ukraine conflict.

One thing is for sure, the government cannot continue to maintain the subsidies it has been applying to fuel and food. That can only to last so long before the currency/economy is adversely affected.


Respectfully,
Playacaribe2
 

johne

Silver
Jun 28, 2003
5,479
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The peso has likely all but run its course of strengthening against the dollar.

The combination of government borrowings, remittances, price of gold, and the renewed flow of tourist dollars has helped Abinader keep the peso strong...........up to this point. International reserves on the balance sheet of the Banco Central continue to be strong..............up to this point.

The significant headwinds working against the peso near term are in no particular order, food and commodity prices, oil, reductions in remittances, possible reductions in tourist dollars, and the largest headwind of all..............interest rate hikes in the US beginning this month and likely continuing throughout 2022.

Interest rate hikes in the US, will cause issues for the peso almost immediately. Abinader front ran those hikes by raising rates in the DR several times in the last few months. This in an attempt to soften the inevitable blow to the peso/dollar relationship.

And the blow will likely not come in noticeable fashion...............but it will come.

President Abinader will need a real strategy going forward to keep the peso from slipping too quickly. Will he continue to tighten interest rates in lockstep with the US..............thereby choking off growth to the economy? No easy answers there. One bright spot might be tourism diverted from Europe due to the Russia/Ukraine conflict.

One thing is for sure, the government cannot continue to maintain the subsidies it has been applying to fuel and food. That can only to last so long before the currency/economy is adversely affected.


Respectfully,
Playacaribe2
PC: With a credit rating of BB- what is the next step down and how much will that hurt the gub to get favorable loans? At this point I doubt anything is "favorable".
 
Jan 9, 2004
10,251
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PC: With a credit rating of BB- what is the next step down and how much will that hurt the gub to get favorable loans? At this point I doubt anything is "favorable".
BB- is "junk" in bond parlance. The DR, as long as I have been observing (20+ years) has never gotten to "investment" grade.

That having been said, Fitch raised its rating from BB- negative, to BB- stable in December 2021. Of course that is well before the world turn of events and skyrocketing oil/food prices which tend to hit emerging markets much harder.

So to answer the question, Fitch would likely push their bonds back to BB- with a negative outlook.

Respectfully,
Playacaribe2
 

johne

Silver
Jun 28, 2003
5,479
1,845
113
BB- is "junk" in bond parlance. The DR, as long as I have been observing (20+ years) has never gotten to "investment" grade.

That having been said, Fitch raised its rating from BB- negative, to BB- stable in December 2021. Of course that is well before the world turn of events and skyrocketing oil/food prices which tend to hit emerging markets much harder.

So to answer the question, Fitch would likely push their bonds back to BB- with a negative outlook.

Respectfully,
Playacaribe2
Would you think that there are provisions in any of the loans that they become "callable" IF the credit rating falls further....and what might be that level?
 
Jan 9, 2004
10,251
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Would you think that there are provisions in any of the loans that they become "callable" IF the credit rating falls further....and what might be that level?
DR sovereign bonds are sold to investors as "callabe" by the issuer (DR). They retain the right to call them back and payoff the bond and that is almost always done if interest rates fall and they can refinance that debt at lower rates........and for longer.

FYI, the DR recently called 7% US dollar bonds due in 2024 and then issued new debt....and for a longer period at a lower interest rate (6%).

Given the current rising interest rate environment, I do not see them refinancing at a lower rate anytime soon.

As to the credit rating portion of your question, if the DR's credit rating were to slip, then their current bonds would become ostensibly less desirable and the market would reflect that in their pricing..............and adding, were that to happen, they would have to offer more interest on each new bond offering as their credit risk of default also increases.


Respectfully,
Playacaribe2
 
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JD Jones

Moderator - Covid 19 in DR & North Coast
Jan 7, 2016
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The monthly investment bulletin I get from Banco Popular has been holding pretty steady on interest rates. I'm not sure it's worth the effort.
 

Lobo Tropical

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Aug 21, 2010
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War in Ukraine has sparked a scramble for dollars​

https://edition.cnn.com/profiles/julia-horowitz
By Julia Horowitz, CNN Business

Updated 1350 GMT (2150 HKT) March 6, 2022
London (CNN Business)The US dollar serves as the backbone of the global economy and is considered the safest currency to hold. So in times of uncertainty, investors like to stock up.
One reason for its sharp rise: Investors decided they didn't want to hold euros anymore given Europe's proximity to the conflict. They dumped the bloc's common currency and bought dollars instead.
Remember: US stocks have been doing way better than European shares since Russia's invasion because America's economy is more insulated from the war and its consequences.
"Markets and central banks want to hold the dollar because it's a very liquid currency. It's highly tradable,"

The DR and their Peso are facing decreasing income and increasing costs.
Covid and now the Russian war on Ukraine with consequent sanctions have increased losses on tourism income.
All imported goods, oil, gas, food staples, consumer goods and also domestically produced items are subject to inflationary costs.
Shipping costs have risen sharply.
The one source of Dominican income is the extremely high tax on imports, hitting all Dominicans.
Buying vehicles, consumer goods, grain imports.

There simply is no good news for Dominicans earning pesos, especially from the middle class on downwards,
Which includes the majority of Dominicans.
In addition to this Dominicans are still discriminated against making it very difficult to receive international travel visas,
Whereas other Nations do not require any visas.
To earn foreign income through work visas is almost impossible for the majority of Dominicans.

The remedy in the barrios seems to be music and drinking on their last pesos of the day.
 

william webster

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Jan 16, 2009
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What was the high water mark for the peso.... 57-58/US$ ?

Now +/- 54/55.... not a serious drop, IMO.... max 4 pesos, less than 10%
 
Jan 9, 2004
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What was the high water mark for the peso.... 57-58/US$ ?

Now +/- 54/55.... not a serious drop, IMO.... max 4 pesos, less than 10%

Oficially, I believe it hit 58.59. At that time (2020) with a shortage of dollars due to COVID/shutdowns/curfews, cambio’s we’re buying dollars at 60.

Respectfully,
Playacaribe2
 

Buxtonite

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Dec 20, 2005
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Caribe Express high in Sosua was 57.7 in mid January. Low of 54.0 and has bounced back up 54.6 as of yesterday.
 

DR fan1990

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SKY

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Apr 11, 2004
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Do you even realize what you just posted?
Your link is about the exchange rate for $2007, not the year 2007.
Smh.
Sorry, but the peso was over 50 to the dollar even before 2007 when Hippo was President. That I am SURE of..............
 

bob saunders

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Jan 1, 2002
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At one time in 2004 IT WAS 54 PESOS to the dollar. When I first went to the DR IN 1997 it was 16 pesos to the dollar.