According to a trader and online trackers, the Cuban peso was trading at nearly 100 pesos to the dollar on the informal market Tuesday, a depreciation of more than 30 percent in less than a month and four times the fixed official rate.
The peso’s free fall is bad news for a population dealing with a severe economic crisis. Cuba had unusually severe shortages of food, medicine, and other goods for the past two years, a situation exacerbated by the coronavirus pandemic and a Cold War-era U.S. embargo.
Local economists and business leaders blamed the recent depreciation on a growing perception that Cuba’s economy is deteriorating with runaway inflation. The government is powerless to reverse the trend.
An independent online news source El Toque, the most widely followed currency tracker in the communist-run country, had the dollar trading at 97.50 pesos on Tuesday, up from 72 at the start of the year.
The MLC, the local electronic currency that Cubans use on par with US dollars to buy goods in domestic specialty markets, was rising in tandem with the US currency. According to online trackers, it traded at 95.90 on the informal market.
The Cuban government estimated annual inflation at 70% late last year; the rate is currently between 300 and 500%. Soaring prices have put a strain on consumers struck by the economic downturn and the pandemic. Health care and education are both provided for free.
Cuban officials said in December that they hoped to alleviate the burden by lowering inflation in the coming months. Still, the crisis was causing the government to become increasingly hampered.
Dollar Hits 2022 High
This year, the dollar rose to its highest level in early European trading on Thursday, following the Federal Reserve’s press conference, leading many to expect more monetary policy tightening than previously anticipated.
Fed Chair Jerome Powell dodged a question about whether the Fed would raise interest rates in consecutive meetings this year, leaving the door open to more than three hikes by the end of 2022. He also almost certainly confirmed that the first hike would occur in March, as widely anticipated.
Short-term interest rate futures now indicate a 20% chance that the first hike will be 50 basis points rather than 25 basis points. At the same time, interest-rate sensitive US two-year bond yields have risen to a two-year high of 1.20 percent.
The dollar index (DXY) measures the value of the US currency against a basket of six developed-market currencies. It was up 0.5 percent at 96.83; The most significant gains were against higher-yielding currencies such as the Australian and New Zealand dollars. The Canadian dollar fell 0.5 percent to C$1.2725 after the Bank of Canada kept its key rate unchanged on Wednesday. However, this signaled that its first hike would be imminent.
The euro fell below $1.12 for the first time since November. However, it quickly recovered to trade at $1.1199, while the pound fell 0.4 percent to $1.3413.
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