Venezuela sets band for forex trade

(Reporting by Ana Isabel Martinez and Andrew Cawthorne; Editing by Daniel Wallis)

CARACAS, May 18 (Reuters) - Venezuela will set a band for dollar exchanges and is banning brokerages from foreign exchange trading on a "parallel" unofficial market in response to the rapid fall of its bolivar currency, the government said on Tuesday.

Central Bank President Nelson Merentes said the move would eliminate speculation while still letting the market set prices. International bond prices would be used as a reference to give transparency to the new trading system, he said.

"The market will now be set according to the values of the securities in the international market through a simple mathematical model which produces a band with upper and lower limits," Merentes told a news conference.

The parallel market, where dozens of brokerages had used a debt swap mechanism to sell dollars at a price above the official rates of 2.6 and 4.3 bolivars, was supplying currency for about half of the OPEC member nation's imports.

But the bolivar has plunged to more than 8.0 to the dollar this month, fueling one of the world's highest inflation rates, and President Hugo Chavez has blamed capitalist speculators.

Analysts and market sources believe the band for the "parallel" dollar will probably be between 5.0 and 7.0 bolivars.

Some economists have warned this strategy may backfire and create a fourth, illegal market for dollars and possibly hasten another devaluation by the government next year. The bolivar was devalued from an official rate of 2.15 in January.

The bolivar's woes are complicating a grim macroeconomic environment for Venezuela which, despite its oil wealth, is predicted by analysts to be the only country in Latin America with negative growth this year.

Chavez blames inflation, which rose to a monthly high of more than 5 percent in April, and the bolivar's weakening on an "oligarchy" bent on causing him problems ahead of an assembly election this year and a presidential vote in 2012.

Many analysts, however, say the socialist president's incompetence in running the economy, including heavy-handed controls and nationalizations of private business, are to blame for Venezuela's poor economic health.