Venezuela Will Weaken Currency in ‘Medium Term,’ Central Bank’s Leon Says

Venezuela will probably weaken the exchange rate in the central bank-administered currency market in the “medium term,” as the government seeks to avoid a boom in imports at the expense of national production, bank director Armando Leon said.

The central bank plans to maintain the exchange rate in the Sitme, as the exchange market is known, at 5.3 bolivars per dollar for now, though it is not good to maintain the same rate for too long, Leon said in an interview in Caracas. He did not provide details about the timing or size of any eventual exchange rate adjustment.

“It is not convenient to fix an exchange rate for too long because the economy moves on,” Leon said. “In the medium term, it will probably be adjusted.”

Venezuelan President Hugo Chavez shut down an unregulated bond market last year after accusing brokerages of driving inflation through currency speculation and replaced it with the Sitme that sells bonds to local importers who resell them in a secondary international market in exchange for dollars. Since June, the market has operated at a fixed exchange rate of 5.3 bolivars per dollar.

Venezuela experienced a surge in imports four years ago as a result of an oil boom that flooded the market with dollars, said Leon. Weakening the exchange rate for the bolivar in the Sitme would discourage imports and boost the economy by aiding local production, said Leon.

“The policy now is to supply currency for raw materials and machinery with the aim of strengthening the manufacturing and commercial sectors,” Leon said.

Venezuela will expand its offering of dollar-denominated bonds it sells in a bid to maintain the average $30 million to $40 million it injects daily into the central-bank administered foreign exchange market, Leon said.

The Sitme, as the market is known, will begin this year to sell Petroleo de Venezuela SA bonds maturing in 2022, Leon said in an interview in his office in Caracas.

To contact the reporter on this story: Corina Rodriguez Pons in Caracas at crpons@bloomberg.net.

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net