MercoPress. South Atlantic News Agency

US dollar continues free fall against Latam currencies

With the exception of Venezuela and Argentina that have government administered exchange rates, in the rest of the main Latinamerican money markets the depreciation of the US dollar continues with no end in the short term according to the latest data.

In the floating exchange rate markets of Brazil, Colombia, Chile, Mexico, Peru and Uruguay the loss of value of the US currency during the first six weeks of 2008 ranges between 5.3% in Chile to Brazil's 0.48%. The other currencies are ranked as follows, Colombian peso 4.78%; Uruguayan peso 3.89%; Peruvian inti, 2.87% and the Mexican peso, 1.37%. However for the twelve months of 2007 the ranking is very different: Brazil leads with the Real having gained 16.69% against the US dollar; Uruguay saw its currency appreciate 11.86%; Colombia, 9.91%; Chile, 6.64%; Peru, 6.17% and Mexico which has almost 90% of its trade with United States, the peso ran parallel having gained an insignificant 0.83%. These down fluctuations are putting pressure on domestic inflation in many Latinamerican countries with Central Banks having to or planning to raise interest rates, which then limits their exports competitiveness. Mexico seems out of the game given its close dependency from the US and forecasts are that the Mexican Central Bank following on the Federal Reserve will have to lower interest rates. But Latinamerican central bankers are also well aware that sometime in the second half of 2008 or beginning of 2009 the Fed will have to drastically revert its cut rate policy. The fiscal stimulus package plus the huge liquidity pumped into the system will at some point begin rapidly reflecting in inflationary pressures. "The brutal liquidity injection will necessarily in the mid term reflect in prices" and that's when the Fed will change its target "from propping the economy to containing inflation", said Mercosur analysts.