After months of relative calm on the foreign exchange market, “free” quotations skyrocketed in April. Four wheels away from the end of the month, the ticket price, which ended in March at around 393 dollars accumulate a raise to $70. Although the government has not yet pronounced itself on the matter, the rise of the blue dollar, and consequently of all parallel prices, concerned about the speed of escalation.
While most City advisors adjust their projections for devaluation, exchange rates and inflation upwards this year, following the US dollar’s jump nearly 16% in the past six rounds, most savers are wondering what is behind this new escalation.
1. Runaway inflation
Undoubtedly, the key factor explaining the dollar’s rally over the past week is the perception that inflation has spiraled out of control. The figure of 7.7% in March and the lack of official reaction fueled the idea that, relative to different prices in the economy, the dollar “was cheap.”
It’s that while inflation piled up in the first quarter by almost 22%, before this new price adjustment, parallel dollars were far behind. Through the end of March, cash with liquidation, how companies choose to become dollarized, was up 20.6%; while the MEP dollar narrowly beat the increase in prices, with a rise of 23.8%.
The blue dollar was the exchange rate late: until the end of March it was up just above 11%, well below first quarter inflation. With this month’s jump, he “got in tune”: he has already risen by more than 33% so far this year, in a dynamic that worries both the market and the government.
“The current real exchange rate is nearly 20% below the average between 2002 and 2022. Furthermore, the financial dollar is trading with a gap level close to 100%. These are signs that the local economy may need a higher level of the real exchange rate to reach equilibrium,” an analyst at Mega Inver said in a report on Friday.
2. Negative month-to-month real rates
Even the inflation data for March confirmed the failure to achieve one of the objectives set with the Fund (one more). The government had agreed with the organization that it would work to offer savers “positive real interest rates”, that is, returns on investments in pesos beat inflation.
Inflation at 7.7% in AprilHe countered with 6.5% which offered the fixed term in the banks until last Friday. And contrary to what the market expected, the Central Bank delayed a new rate adjustment, in the midst of a fight between its president, Miguel Ángel Pesce, and the Minister of Economy, Sergio Massa.
Finally, the agency validated a 300 basis point hike, so that the nominal rate of bank placements rose from 78% to 81% per annum, in a measure defined by the market as “late and insufficient”. Is that with this level of performance, making a term deposit in a bank for 30 days leaves a profit of 6.75%, which it loses even with inflation which is forecast above 7% for April.
3. Limit reserves and doubts about the soy dollar 3
Amidst a persistent drain on reserves, Sergio Massa risked his “silver bullet” and decided to relaunch, for the third time, the export incentive program and offer a higher exchange rate to soybean producers in exchange for speeding up their currency settlement.
The exchange rate at $300 failed to seduce producers and just $1,390 million entered the market in week three of the program, well below the $2,750 million that was settled in the first eight rounds of the original soybean dollar release last September; and also of the 1.354 million dollars accumulated in the same period of the second edition of the program, last December.
Although the government puts pressure on the countryside to carry out its liquidations, move with caution in the sector. They warn that it is the producers themselves who do not want to part with the beans in full tension on the exchange rates and this complicates the pace of sales. All told, the agro-export complex liquidated $105.8 million on Monday, and the central bank managed to get hold of $106 million.
“The soybean dollar is the backbone of the Llegar Plan and if it doesn’t prosper this week, the focus will once again be on the level of net reserves. According to our calculations, they closed on Friday at $988 million,” they indicated in PPI and anticipated: “As an aggravating circumstance, between Friday and Tuesday next week, $1.3 billion will have to be paid to the IMF in interest and capital of the SBA signed in 2018, so the title could approach zero”.
4. Political noise and rumours
The internal crisis of the governing coalition has grown in volume in recent days and this has strongly influenced the level of market uncertainty. The tension between Sergio Massa and the president Alberto Fernández, which after rumors and betrayals ended with the resignation of the presidential adviser, Antonio Aracre, and a meeting in Olivos between the president and his economy minister spread to appease fears, it has only fueled the demand in the foreign exchange market.
Also, it was learned last Friday that a brokerage firm, Max Capital, had spread a rumor among its clients 50% devaluation of the official exchange rate for this Monday. The reports were discarded, Alyc had to come out to apologize and the CNV started a summary. But the damage was done.
5. The dollarization debate seeps into the electoral agenda
Last week, as the blue dollar soared on the street, the electoral agenda became relevant. Several candidates attended the business meeting held in Bariloche, the so-called Llao Llao Forum, and could not avoid the discussion initiated by libertarian Javier Milei on whether the dollarisation of the economy is a viable alternative for this crisis.
With voices for and against, dollarization slipped into the agenda and many more they turn to purchases in the face of uncertainty on what measure a possible new government will be able to take at the end of the year.
“The benefits and costs of the dollarization of the economy are well known. The instruments of economic policy are lost, but the exchange rate risk is canceled and inflation tends to approach that of the country issuing the new currency (in this case the United States)”, noted in Delphos, warning: “The balance may seem very interesting in the short term considering the high inflation suffered by Argentina, but it does not replace other reforms that the country needs”.
6. Search for coverage for investors and savers
All of these factors, coupled with the uncertainty of an election year, are driving both savers and businesses to seek out hedging options. “In the midst of exchange rate escalation, Implied dollar futures rates have skyrocketed”explained Nery Persichini of GMA Capital.
“Post-STEP expiration contracts have managed to trade at more than 220% annualised. And although the margin-implied yield has been trading in recent days, August and September are trading at 215% and 213% respectively,” l added. ‘ economist .
Source: Clarin
