The strange Central Bank CD story continues

January 24, 2010

So, the strange story of the CD’s continues. Below the history of the swap exchange rate since the Central Bank announced the so called “auctions” in which Central Bank CD’s are sold at a fixed price. As you can see the red line (right axis) shows the price of the swap rate for buying dollars since the announcement of the CD auctions. Remarkably, the only impact so far of the sale of the CD’s has been psychological, much like when the Government sells bonds for Bs. The swap rate went down from Bs. 6.4 to the $, down to Bs. 6.1 the day of the first auction (before anyone knew if they had given you anything (the results were announced the next day). At that auction, the Government sold US$ 50 million at Bs. 5 per dollar and the maximum amount allocated was US$ 60,000 shown on the left scale of the graph in blue.

At the second auction, the Government gave up to US$ 50,000 per order, also at Bs. 5 per $ and a total of US$ 50 million.

Once people realized the small amounts allocated and that the auctions will not be daily, the swap rate went to Bs. 6.1 per $. In the third auction, the Government lowered (??) the price of the dollars to Bs. 4.8, increasing the arbitrage between the swap rate and the CD’s, but it sold only US$ 40 million. By then the maximum allocation was $15,000.

And no sooner had Deputy Iroshima Bravo said that these auctions were transparent and organized in such a way that the public would benefit by limiting how much corporations obtained, the Central Bank held the fourth auction, also at the lower price of Bs. 4.8 per $) in which orders were given up to $24,000 maximum, but all individuals were excluded, only corporations had their orders filled according to the Central Bank. (I think this tweak is correct, but $24,000 does little to big buyers)

Thus, after four auctions and US$ 180 million, the swap rate is back up, the Government is selling fewer dollars and making them cheaper, increasing the arbitrage. Furthermore, the distance between Chavez’ “revaluated” target of Bs. 4.3 per $ and the swap rate remains 41.8% above the official rate.

Go Figure!

If anyone understands the BCV’s  strategy, please explain…


2 Responses to “The strange Central Bank CD story continues”

  1. Omar Says:

    It’s called Merentes auction, orders are allocated by prorateo, emphasis in RATEO…

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