Cambio rates in Suriname fell further on Tuesday. The Central Bank of Suriname (CBvS) expects that the downward trend in exchange rates will continue. It is still a policy principle that the exchange rate is determined on the basis of supply and demand on the foreign exchange market. The CBvS notes a trend of falling exchange rates, which implies that the SRD is increasing in value against the US dollar and the euro compared to exchange rate developments in the first half of 2023.
The US dollar was bought at the cambios between SRD 29.50 and 30 and sold between SRD 30.40 and 30.75. To buy US$10,000 and more, a higher rate was used.
Euro was bought between SRD 30.50 and 31 and sold between SRD 31.50 and 31.75. A higher rate was also used for purchases of 10,000 euros and more.
The bank paper rate at the CBvS for the US dollar on Tuesday was SRD 30.216 for purchase and SRD 31.108 for sale. The euro purchase was set at SRD 32,589 and sale SRD 32,993.
According to the CBvS, spot and book exchange quotes on the foreign exchange market have been showing a downward trend since September 2023. Over the past period, a continued decline has been observed in spot and non-cash exchange rate quotes. “Notably, the difference between the Bank’s exchange rate quotes and the parallel foreign exchange market has decreased and is negligible since the second half of 2023.” The CBvS expects that these downward exchange rate developments will continue for the time being.
According to the CBvS, the reasons for the current exchange rate declines can be broadly divided into three influencing factors, namely macroeconomic factors, sector-specific factors and market sentiments.
– The macroeconomic factors have to do with the dampening exchange rate effects resulting from the tightening monetary policy as well as fiscal discipline and its cautious continuation. The monetary tightening has caused bank interest rates to rise and credit growth to decline. The fiscal measures, such as the increase in electricity rates, the collection of VAT and the reduction of subsidies on utilities, have resulted in demand management effects in the economy. Moreover, high inflation in recent years has significantly reduced the purchasing power of the population.
– The sector-specific factors that have contributed to the exchange rate declines include the reduced demand for foreign currency, particularly from multinational oil companies, as a result of already accumulated arrears to their parent companies. This has freed up between US$10-15 million for the other foreign currency buyers. Other sector-specific factors include the large foreign currency positions of banks that they are divesting in order to mitigate exchange losses resulting from falling exchange rates.
– Market sentiments can be influenced by statements and views of prominent figures in society on foreign exchange market-related matters and fuel actions based on expectations. If expectations are met, the consequences may last, but if expectations are not met, the consequences may be short-lived.
The sentiments of parties in the foreign exchange market are now set for exchange rate falls. This causes buyers to adopt a wait-and-see attitude when purchasing foreign currencies, creating a self-fulfilling prediction of a fall in the exchange rate.
On the currency market, the demand for US dollars is declining, partly due to the decreased demand, mainly from oil companies and other importers. Total sales volume fell from a peak of US$78.8 million in March 2023 to US$56.6 million in March 2024, with demand from oil companies falling from a peak of US$25.1 million in February 2023 to US$8.2 million in March 2024. Demand from oil companies is back to pre-July 2022 levels of US$7-8 million per month.
The decline in demand for foreign currency is structural in nature and the CBvS does not expect any significant change in this as the stringent and prudent monetary and fiscal policies continue.
