Sunday, May 28

Record dollar: what are the causes and what factors anticipate greater volatility in the coming weeks

The exchange rate gap is one of the main imbalances facing Argentina. The fact that it remains at these values ​​keeps devaluation expectations high, an element that discourages the liquidation of foreign currency and advances the demand for imports, in an economy in need of dollars. But another problem that has become evident in recent times is persistence over time. The delays in the agreement with the International Monetary Fund (IMF) it was just one of the most important causes that propelled days of erratic movements in the parallel exchange rate.

A report carried out by Econviews, gave an account of some of the causes that promoted this situation: in the first place, economists point out that one of the causes is related to money. The monetary issue of $685,000 million of transitory advances in December, added to a lower demand for money than the previous month, produces an excess of pesos that many no longer want to have.

One factor pointed out is in relation to the behavior of the Central Bank. After the rise in the interest rate and “by not touching the one-day rate and the 7-day passes, the banks did not increase what they pay for interest-bearing accounts, where institutional money is housed and therefore, ended up encouraging the counted on liquidation”, affirmed Econviews. On the other hand, regarding an acceleration of the crawling peg, although the agency chose to try to get closer to inflation, it issued a new resolution restricting another channel through which to access dollars to avoid a greater drain on reserves. It is important to note that the BCRA was only able to buy on Friday after eight consecutive rounds in which it had to dispose of US$140 million.

Finally, from Econviews they point out as an aspect that encourages greater volatility for the coming weeks, the delay in the agreement with the International Monetary Fund (IMF). “Although the conversations continue, the use and abuse of the political tool to seek to change the IMF instead of changing the Argentine strategy does not generate confidence. It does not do so because the market judges that the IMF is not going to be frightened by the threat of Argentine default and we agree with that vision,” said the consultant.

“Secondly, if Argentina manages to twist the IMF’s arm and signs a program without adjustment (very unlikely in our opinion), the result will be to avoid default with the IMF, but confidence will not be generated either,” they concluded. The market and the economists agree on only one thing: until there is a resolution in this regard, Argentina will suffer exchange rate shocks as a result of the uncertainty.