Limits on bond trading

Venezuela's Central Bank said Monday it will allow businesses to obtain up to US$4.2 million a year by trading currency through the country's bond market.

The Central Bank announced the new limit after three days of bond trading under new, tighter regulations.

Some business leaders criticised the monthly maximum of US$350,000 as insufficient, predicting it would worsen shortages of some imported products. Caracas business chamber leader Victor Maldonado said he expects the limit to exacerbate Venezuela's recession.

The bond market for years has been an important source for Venezuelan businesses to obtain dollars to pay for imports because the government maintains currency-exchange controls and makes available a limited amount of dollars at official rates.

The official rates are 2.6 Venezuelan bolivars per dollar for high-priority goods like food and medicine and 4.3 bolivars to the dollar for non-essential goods. The bond market offers a third-tier hovering around 5.29 bolivars to the dollar for individuals and businesses unable to obtain currency at the official rates.

The regulated trading system overseen by the Central Bank sets a daily band of permitted prices for bond trades and has brought down exchange rates from more than 8 bolivars to the dollar last month, before the government temporarily shut down the market.

President Hugo Chavez blamed speculative trading for undermining the bolivar's value under the earlier trading system. The country is struggling with 31 per cent inflation.

AP