Monday, January 17

Dollar, rates and reserves: How long will the “exchange summer” continue?

It occurs in a month in which, after the usual slump in the field’s foreign exchange between September and November, seasonality offers a respite. On the one hand, the fine harvest begins, which this year promises a significant inflow of dollars from wheat exports. On the other hand, the greater demand for end-of-year pesos by companies and individuals (as a result of the payment of the Christmas bonus, some taxes, Christmas purchases and holidays) decompresses the purchase of foreign currency and even promotes some disarmament of joints.

With everything, the respite in reserves also coincides with a decline in the volume of operations in the official exchange market. Yesterday, just $ 211 million was traded, a quarter of the currencies traded last week.

The higher demand for pesos was also one of the reasons why this month all parallel prices registered a decline from the peaks reached in November. The cash with settlement (CCL) accumulates a drop of 7.5% to $ 198.34 and the MEP dollar, a decrease of 4.5% to $ 191.64. The blue, meanwhile, falls in the month $ 3 to $ 198.50.

Although it remains at very high levels, in all cases the gap pierced 100% with respect to an official exchange rate that began to accelerate. It is that the summer of December coincided with the decision of the BCRA to accelerate the rate of depreciation, as Ámbito had advanced, to bring it closer to the inflation rate little by little in the framework of the negotiations with the International Monetary Fund. Between May and November, the wholesale dollar gained just over 1% monthly, about two points below the monthly consumer price index in an attempt to help slow the rise in the cost of living. So far in December the rate has almost doubled since in just 16 days it accumulated a rise of 0.95%. Yesterday it closed at $ 101.90.


Given this acceleration of the crawling peg (managed depreciation), the Central had begun to analyze a rate hike that would align both variables with inflation, as confirmed by official sources. In its statement after the face-to-face meetings in Washington with a delegation from the Ministry of Economy and the BCRA, the IMF had expressly asked to move towards a positive real rate. Yesterday, the board of the monetary authority discussed the possibility of an increase in the reference interest rate (which has remained stable for 13 months) in light of the November CPI, which slowed to 2.5%. For the moment, it decided to keep the rate at 38% nominal per year and 45.44% effective per year.

However, the measure will continue to be analyzed in the future. In the market, different consulting firms and operators expect an increase of 3 percentage points to be validated in January.

The exchange break in December was longed for in the economic team. Despite the fact that its officials always flatly ruled out a devaluation jump, the pressure on reserves in the face of a maturity schedule that the country could not handle was one of the engines of the official decision to accelerate the negotiation with the Fund. In fact, next week the second capital payment to the body corresponding to the debt that Mauricio Macri took in 2018 will be made: it will be close to US $ 1,900 million, about a third of the net reserves according to private calculations . Although the Government negotiates that the agreement with the IMF includes a reimbursement of the almost US $ 4,000 million of principal paid this year.

After December, more complex months will come in seasonal terms before the season of greater foreign exchange income begins in March with the thick harvest. Meanwhile and while the negotiation terms seem to stretch, the Government aims to close a technical understanding with the Fund to refinance the US $ 45,000 million debt over the next few weeks, with a mountain of maturities that threatens on the horizon.