AFP - Venezuela will be forced to pour greenbacks into an unofficial "gray" market here to support the national currency, fueling what is already Latin America's highest inflation rate, analysts predicted.

President Hugo Chavez announced Friday the bolivar would trade at 4.30 to the dollar for "non-essential" goods -- double the present rate -- and at a rate of 2.60 bolivars to the dollar for basic goods, in an election-year move aimed at favoring the poor.

"The government is going to rein in the impact (of the changes) on the gray-market dollar by flooding the market with a lot of dollars," economist Gustavo Rojas told AFP, with inflation already around 25 percent.

While the government says it aims to get rid of the gray-market dollar at some point down the line, economists shrug off the idea.

"As long as there is a (government) fixed exchange rate, the gray market dollar is going to be there, because it is trying to meet the demand for dollars of people who do not have access to the official exchange rate," economist and university professor Jesus Cacique explained.

Exchange rates on the gray market are pegged to dollar denominated bonds issued by the Venezuelan government which trade at far higher rates of exchange than the official rate set by the government since 2003.

It is legal, but Finance Minister Ali Rodriguez has said the government eventually aims to phase it out. Some factors surrounding its use are however illegal, such as publishing the unofficial rate.

Chavez, after announcing the new exchange rate system, warned that the government and central bank would intervene in the market to squelch any currency speculation.

In late 2008, faced with plunging oil prices on which Caracas budget coffers depend, the government cut back on the amount of dollars it was giving importers and citizens who travel abroad, favoring its own international buying needs and delaying some payments.

That sent the gray market dollar's value soaring to as high as three times the official rate, even though the government sold bonds to drive down that rate.

Domingo Maza, a former central bank chief, said the gray-market dollar "will continue to play an important role in setting prices" if the current system is maintained as expected.

Rojas said that with the devaluation the government may have plenty of bolivars in hand. But "it cannot satisfy the country's hard currency demands" at a rate of around 4.3 to the dollar because it simply does not have that many greenbacks, he added.

"The gray-market dollar exchange rate is headed higher" later this year, he predicted, likely more bad news for the stressed local economy.