Exchange rate peace has arrived, but there are doubts that it can be maintained

Exchange rate peace has arrived, but there are doubts that it can be maintained
Exchange rate peace has arrived, but there are doubts that it can be maintained

The facade of the BCRA, which found it very difficult to add reserves EFE/Juan Ignacio Roncoroni

The most approximate conclusion about what happened on Friday with the dollar, and what is projected for today, is that the demand for vacations is influencing it. This explains why the MEP remained unchanged, the cash settlement (CCL) fell 0.5% and the “blue” rose $15 (+1.06%) to 1,420 pesos.

The dollar card for those who travel abroad is quoted at $1,495, which means it has a difference of $75 that favors those who travel with bills. Financial dollars remain calm because investors consider that they are at a ceiling and were strong sellers on Wednesday and bought back on Thursday. On Friday, they considered that the currencies were at a point of equilibrium. Demand was absent in a round of few operations. Buyers have in mind the collection of USD 2,131 million that will be deposited tomorrow in their accounts. The figure corresponds to the coupon cut of interest on 7 bonds and capital and interest of the Global 2030 (GD30) and the Bonar 2030 (AL30).

The market knows that part of the dollars will be reinvested, but another part will be tempted to sell when it has ahead of it a Treasury Bond auction that incorporated into the menu four Capitalizable Letters (LECAP) without a minimum rate, three bonds linked to the dollar that mature in 2025, 2026, and 2027. They also know that July will be a month of reserve losses because it has to face the payment to the IMF for a little more than USD 3,000 million because it has to pay the IMF.

On Friday, the Central Bank had to sell USD 6 million and is expected to continue losing dollars in the coming days due to energy payments.

The report of the consulting firm F2 of Andres Reschini The report states that “the first week of July was a tailwind for Argentina in terms of international markets. The dollar (DXY) fell against the six main world currencies from 105.9 points on Friday to 104.9, when it had not broken through 105 since June 12. The Brazilian real also brought relief, strengthening due to the weakening of the dollar and after closing at almost 5.70 on Wednesday, it fell to 5.46 per dollar. Gold rose 2.5% and helps the BCRA reserves and, as if this were not enough, soybean futures in Chicago accumulated a rise of 3.2%.”

The first week of the month ended with a cumulative balance of USD 73 million, while in the first week of the previous month it had added 99 million. In this context, it is a relief (Consultora F2)

Regarding the Free Exchange Market (MLC), the consultancy points out that “with the US market back to normal, USD 232 million were traded and the BCRA returned to sales, reporting a net deficit of 6 million due to its interventions. However, the monetary authority’s weekly balance is once again positive after two negative weeks. The first week of the month ended with an accumulated balance of USD 73 million, while in the first week of the previous month it had added 99 million. In this context, it is a relief.”

F2 adds that in the futures market there are slight declines and that “the implicit rate curves and the LECAP curves remain coupled and suggest that the tension on the dollar at the end of June is behind us, at least for the moment.” The report warns that “the feeling of greater calm or lesser tension in the futures and the international tailwind this week, the market has not recovered the euphoria for Argentine assets that was seen towards the end of May. Neither the sovereign debt in foreign currency nor the equity (local shares) have returned to the valuation levels they had reached by then.

The doubts surrounding the accumulation of reserves and the future of the monetary scheme continue to permeate the mood of the market, which is more cautious.” The consulting firm 1816 maintains that “the Government insists on maintaining the exchange rate policy with the objective of lowering inflation to 2% per month (the monthly rate of devaluation) and only then releasing the restrictions. But neither the REM (survey among consulting firms carried out by the Central Bank) nor the bonds think that the 4% monthly inflation will be breached. The Executive could decide what to do in August or September, at the time of cutting the Country tax by 10 points. There it can ratify its current strategy and lower the import exchange rate by 10 points, which would help reduce inflation, or take advantage of the moment to change the exchange rate strategy.”

EconViews handled the entry of Federico Sturzenegger The minister said that the process of deregulating the economy “will not be easy. On the one hand, everything that requires legislation will clash with the low representation of the Government. On the other hand, all the changes will affect vested interests in companies, entire sectors and provinces. Those who do not want the reforms finance campaigns, have access to the media and will sell their defeat dearly. That is to say, in addition to having a list of all the points that need to be resolved, from vehicle registrations to provincial tax harmonizations, there must be a political strategy to maximize success and a consistent sequence that has quick wins (quick profits) so that society continues to push for change. A successful agenda of deregulation, productivity and simplification will make the foreign exchange issue one more among many and not the sole topic of discussion in every company and every social gathering. When government authorization is a pass-fail, it is difficult to think in the long term.”

Unlocking the potential of Argentine production should lead to increased exports, more employment and companies worrying about long-term issues such as education, institutions, quality and other issues that the unstable macroeconomic situation pushes to the background. Without this agenda, it is difficult to be optimistic in the medium term (Econviews)

The consulting firm of Miguel Kiguel and Andres Borenstein He points out that “unlocking the potential of Argentine production should lead to greater exports, more employment and companies seriously worrying about long-term issues such as education, institutions, quality and other issues that the unstable macroeconomic situation pushes to the background. It will not be easy and not everyone will be a winner. But without this agenda, it is difficult to be optimistic in the medium term.”

The FyMA consultancy firm Fernando Marull He speaks of “the two bets of the Government. On the side of the pesos, eliminating all sources of issuance: today there are only puts (options for the advance sale of bonds to the Central Bank by entities) for $20 billion and the purchase of dollars; while reducing the stock by migrating the pesos from the BCRA to the Treasury with LECAP and the new Treasury Bills. Of course, the pesos already issued are in the Treasury. LECAP at 4% is the bet to regulate the exchange rate; but it also bets on dollars.

Although the BCRA will not buy many reserves until September, it is betting on the RIGI and the Whitewash, which will provide dollars until September. Also, a new agreement with the IMF, Organizations and some Repo with Banks” FyMA points out that despite the fact that the Minister of Economy, Luis Caputoinsists that there will be no changes until 2025 “our base scenario today is the lifting of the Cepo in the fourth quarter of the year. In the official dollar, if they lower the PAIS Tax by 10%, there is room to raise the dollar by 10% without inflation.

We imagine that with fewer restrictions the official dollar will rise 20% in October, with some temporary transfer to inflation (7% in October). We also assume the elimination of the blendso that the BCRA can buy reserves again and absorb the increased imports that are currently going to the CCL. In the parallel dollars, restrictions will possibly be eliminated step by step to give the CCL a larger market.”

The team of research Balanz believes that “the focus will continue to be on the Government’s clarifications regarding the exchange rate regime. The slowdown and possible reversal in the accumulation of reserves due to payments owed for imports could add some concern, especially as we approach 2025, when the need for dollars will increase. The biggest unknown lies in the future of capital controls and the exchange rate regime that the Government has in mind. In addition, the Government’s decision to migrate the repos from the Central Bank to the Treasury will also put the focus on the ability to continue showing good fiscal data.”

The report of Ivan Cachanosky The ESEADE report indicates that the money supply tap for the purchase of dollars “would remain open as long as the accumulation of reserves continues, which is not clear that will happen in the remainder of the year. In turn, the economic team indicated that the next step of the plan is the exit from the cepo, although there were no further details. This lack of a roadmap, which the IMF had also demanded, is what made the market nervous, as it sees how inevitable decisions are postponed due to the fact that inflation is placed as a priority objective above the exit from the cepo. The latter would be risky since eliminating capital controls would generate an exchange rate jump that would make inflation temporarily rise for a few months. Thus, the market reacted negatively due to the fact that:

  • The Government is in no hurry to get out of the trap (fourth quarter of the year?)
  • The Government would maintain the exchange rate scheme regardless of whether this means losing reserves and appreciating the exchange rate.

ESEADE adds that “Phase II begins with some uncertainties that the market will closely monitor.

  • When will we really get out of the Cepo?
  • What instrument will the Government use to achieve zero emissions when April-May-June were expansive?
  • Will the BCRA be able to buy dollars again on the Foreign Exchange Market to accumulate reserves?
  • “What will happen to the exchange rate gap?”

The answer to many of the questions that economists are asking will be given in the after-market on Wednesday after the coupon payment and in the Treasury bills auction that day. The movement made by investors will be decisive for the decisions taken in the Ministry of Economy. The exchange rate scheme is under pressure and everyone is wondering if it will hold up. For now there is exchange rate peace, the question is how strong it is.

 
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