Ortega intends to "contain inflation" by slowing the rate of devaluation of the córdoba, says economist

Ortega intends to “contain inflation” by slowing the rate of devaluation of the córdoba, says economist

The Central Bank of Nicaragua (BCN) announced the reduction of the sliding rate of the exchange rate of the córdoba with respect to the US dollar from 2% to 1% per year. According to the top bank issuer, this measure will help “offset the effects of international inflation” and strengthen the “stability of the national currency.”

The economist Marco Aurelio Peña assured Article 66 that, with this decision of the BCN, the rate of devaluation of the córdoba with respect to the dollar will decrease, that is, now the córdoba will lose value at a slower rate. Under the Ortega Murillo administration, the reduction was applied for the first time in 2019: it went from 5%, which had been there since 2004, to 3%. Then in the last quarter of 2020, it went from 3% to 2%.

Related news: Nicaragua’s GDP grew little at the end of 2022, only 2.6%

«The official exchange rate is programmed one month in advance by the BCN according to the currency slip rate. Hence, the BCN makes an exchange schedule that serves as a reference for private economic agents, mainly commercial banks, “explained the expert.

Ortega intends to "contain inflation" by slowing the rate of devaluation of the córdoba, says economist

«The current exchange regime is a system of announced mini devaluations that served to overcome the great monetary imbalances such as inflation and mega-devaluation that were inherited from the 80s. In the 90s it served to curb this imbalance and also the economic agents felt that with that regime there was certainty and predictability of the exchange rate,” he added.

The reduction in the slippage of the córdoba seeks to contain the sustained increase in domestic inflation that is affected by international inflation, analyzed Marco Aurelio Peña. He affirmed that the nominal income of Nicaraguans has lost value, but there is not much that can be done because this is due to world inflation, caused mainly by Russia’s military invasion of Ukraine. “The measure is being implemented in a context of galloping, double-digit inflation,” he said.

Who benefits?

Peña said that said action by the BCN will “relatively” benefit all people who receive income in córdobas, or who have acquired credits in dollars or for the purchase of cars, houses, personal and vehicle loans because when the córdoba is revalued, people with time will pay less córdobas for dollars. The banks would change the maintenance of value clause; this would be lower, benefiting the bank debtor.

“It is about protecting a little purchasing power. Other beneficiaries are importers because they would deliver less córdobas for the acquisition of goods manufactured or coming from abroad due to the same measure, “he stressed.

Regime will advance the June salary to state workers.  Photo: Government.
Ortega intends to "contain inflation" by slowing the rate of devaluation of the córdoba, says economist

Peña stated that “relatively harmed (by this measure) would be the people who receive dollars as the recipients of remittances and the exporters who receive dollars for their products.” Others who will also be affected in the adjustment of their retirements will be the elderly who will receive less money because now said variation will be 1% and not 2%.

The economist indicated that this drop in the percentage slippage of the value of the currency “will take longer than a dollar to cost 37 córdobas because the decimal variation will be slower.”

In addition, he assessed that it would be “irrational” for the BCN to adopt a measure in a context of high inflation if this is going to generate negative consequences. “One assumes that what they are looking for (with this reduction in the slip rate) is to contain the degree of inflation via a monetary policy scheme,” he considered.

The Ortega Murillo regime projected that its Gross Domestic Product (GDP) would grow between 3.5% and 4.5% in 2022, the second consecutive year on the rise after three years of closing with a red balance after the sociopolitical crisis of 2018 , with inflation between 10% and 11%, according to the BCN. In 2023, the dictatorship forecasts growth of 3% to 4% of its economy, with inflation of 5% to 6%.

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