Spray prices exchange market from Argentina moved to rise in all segments this Tuesday, before renewed political tensions and lack of incentives for bank deposits in pesos, after the recent retraction in the interest rate that the Central Bank has been applying, in line with the fall in the inflation index.
The operators consulted by Reuters They were attentive to the uncertainty generated after Spain announced the retirement of its ambassador in Buenos Aires, in another chapter of the controversy over the Argentine president’s comments, Javier Mileiabout the wife of the Spanish prime minister Pedro Sanchez.
Meanwhile, another point of conflict in politics arises from the lack of progress regarding the so-called “Bases Law”, the mega legislative project in which the Miliei administration supports its objective of an ambitious reform of the State and the liberalization of the economy. It is expected that this week the Senate will endorse in committee the official initiative and the fiscal package to advance the deregulation advocated by the Government, whose treatment took longer than the President intended.
“He dollar fluctuates like any asset in the economy and was expected to rise after several rate cuts of the Central Bank, which assumed the exchange risk by lowering interest rates. Now we must prevent this rally bullish trend does not generate a new run on retail prices,” he told Reuters a financial analyst.
The free dollar set an intraday nominal record of $1,260 on January 25
Another point to consider in addition to the financial reasons – lower rates – and political reasons – delay in the Bases Law and the May Pact, and the diplomatic conflict with Spain – goes through the slow export clearance performancewhen a greater influx of foreign currency was expected due to the thick harvest, which is seasonally concentrated in the second quarter of the year.
Export income is lining up in the area of USD 300 million per day, when in the autumn months it is common for wheels to happen with a volume of operations around USD 600 million in the cash segment of the exchange market .
The 2% monthly devaluation scheme takes away an incentive for the liquidation of agricultural dollars
This income of foreign currency is essential under the scheme established by the Government, since 20% of the agricultural dollars are settled in the stock market (the so-called “blend” dollar), a flow that helps contain fluctuations in the parity of the “cash with settlement” and that is transmitted to the quotes of the MEP dollar and the “blue” dollar, the alternative businesses to the official “stock”. Thus, the exchange gap to a floor of 10% – the lowest since October 2019 -, an indicator that serves to estimate market devaluation expectations and that has now returned to a ominous threshold close to 40 percent.
In the same sense, the remaining 80% of agricultural settlements that are carried out through the exchange market are the motive for the large purchases of dollars made by the Central Bank -close to USD 17,000 million- after the historic devaluation of December 13, 2023, which raised the official exchange rate by 118% in one day, to the area of 800 pesos.
After the BCRA rate cut to 40%, fixed-term deposits are yielding 3.3% monthly, below expected inflation, which encourages demand for dollars
Here lies another point of the exchange rate scheme that analysts have been debating, that of the continuity of the crawling peg either 2% gradual devaluation monthly regulated by the Central Bank, since given that inflation remains well above that threshold, it ends in a lack of incentive for agriculture to speed up income of commercial dollars.
Furthermore, the numbers released by the Central Bank show that we are still very far from achieving a “nominal anchor.” The Monetary Base, for example, has already risen 65% so far this year and it did nothing more than accompany the inflation accumulated in the first quarter. The $10 billion Base that the Government received when it took office was far away. In reality, since then that level has been widely surpassed and now stands at practically 16 billion pesos. With more peso liquidity in the market, a “plus” so that the dollar is more in demand.
The free price of the dollar now sits at $1,230 for sale, with a gain of 50 pesos or 4.2% on the day. This is its highest price since January 25 ($1,245 at closing). The informal currency accumulates a increase of 190 pesos or 18.3% in May, above inflation dear. With a wholesale dollar at 889 pesos, the exchange gap reaches 38.4%, the widest since February 7, 2024 (40.9%).
The prices of the dollar implicit in stock assets also show increases, in line with the free dollar. The “cash with settlement” rises 1.9% to $1,163, while the MEP dollar gains 2.7%, to $1,137, in both cases at maximums since February 9.
“The lowering of rates and the crawling peg 2% monthly for the official dollar – the market buys that it will be like this until July and then sees 4% to 5% – They are not compatible with an exit from the ‘traps’“said a report prepared jointly by the Argentine Institute of Finance Executives (IAEF) and the consultant Econviews.
President Milei declared in the morning during a television interview that He was not worried about the “blue” and explained that the BCRA publishes the purchase of reserves, the interest rate and the official exchange rate daily: “I have a PAIS tax of 17.5% (for imports). That gives you a exchange rate of 1,090 pesos. That’s what it is for us (it is) the official exchange rate”.
