Venezuela's inflation effort less effective, analysts say

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Venezuela's inflation effort less effective, analysts say

CARACAS 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.

President Nicolas Maduro has tried to fight inflation by anchoring the exchange rate in bolivar for months. It has increased the supply of foreign currency cash in local banks and limited the expansion of credit and public spending.

The strategy is no longer working, analysts said.

The exchange rate will fall to 10.23 bolivars per dollar by Wednesday, despite the fact that the Central Bank of Venezuela has sold fewer dollars in recent weeks and the government has increased spending.

The local currency has depreciated 17% since October, and 55% so far this year. The country's monthly inflation was seen as 6.2% last month.

The strategy of lowering prices with the exchange rate frozen isn't working, according to economist Jose Guerra, who predicted inflation in November could return to double digits.

Inflation started to slow down at the end of 2021 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 has a fragile balance. Its stability depends on the amount of dollars the Central Bank injects in an environment in which the government spends more in bolivars, said Luis Arturo Barcenas, economist at consultancy Ecoanalitica.

He added that the fragile model is imploding.

The issuer's weekly placement of foreign currency in banks has been about $50 million, while it was $80 million to $100 million a month ago, according to estimates by local consultancy Sintesis Financiera.

The exchange rate may be fine with the government letting it slide a bit, if it allows them to spend again, according to both economists.

The central bank didn't respond immediately to a request for comment.