The first month of 2024 will be the terrain in which for the foreign exchange market shock measures will be tested announced by Javier Milei in the last two weeks of the year.
Although the market responded with unusual optimism to the “Caputo plan” and to the first macro guidelines which represent the content of the DNU signed by the president and the body of the “Omnibus Law” which the Congress will have to deal with, in the month of January the first obstacles to be overcome by the economic team.
Evolution of inflation and demand for coverage
One of the first issues that both investors and savers will monitor is the march of inflationafter accelerating in December, reaching the monthly record of the last 33 years.
“The devaluation, added to the release of some prices repressed during the previous government, will bring retail inflation in December to 25% monthly, leaving a brake of almost 15 points for January which, added to the inflationary inertia that drags down the economy, would bring inflation to 30%“said Martín Polo, of Cohen.
“Only by February could we start to see inflation that we expect to increase by 18% monthly and 14% monthly for March. This is how things are between December and Marchprices would pile up a 120% increase, offsetting all the competitiveness gain generated by the initial exchange rate adjustment”the economist warned.
The surge in prices was accompanied by a strong signal of lower rates, both those paid by the Central Bank and the National Treasury, therefore Investors no longer find how to cover their capital.
The final blow was delivered on the last Thursday of the year by the Central Bank, which limited fixed-term placements in UVA, the last refuge of retail traders, and extended the placement terms to 180 days.
Pressure on the exchange rate gap
Therefore, investors and savers could take their pesos, in an effort to protect them from the blender, to the parallel marketgiven that the exchange rate gap closed the year at around 20%, after having come close to a minimum difference of 10% between the price of the official dollar and the financial one.
By January, many of the “seasonal” factors that helped narrow the gap will have dissipated: demand for pesos collapses again until reaching a new seasonal low in February, and a light request for dollars begins, especially to pay expenses for holidays abroad. At the same time, taxpayers who had forfeited dollars for the “photo of personal property” taken on December 31 have once again sued them.
Moreover, The impact of 80/20 agricultural settlements endswhich would take away liquidity from the MULC.
This would force the Central Bank to increase the pace of its “daily microdevaluations”, after setting the creeping picket to 2% monthly thereafter overcoming exchange rate in December. “A rate of to crawl 2% when inflation is around 30%, could widen the gap again to the extent that a new exchange rate correction is perceived to be latent,” consultancy firm LCG said.
Polo agrees: “We don’t think this is likely –or at least we don’t see it as a favorable aspect– that the BCRA maintains the 2% monthly depreciation rateso we expect that starting from 2024, the rate of exchange rate rise will gradually accelerate to 5% in January, 8% in February and 11% in March, which will enable the TCRM (multilateral real exchange rate) to settle at the levels of last August, after the post-STEP exchange rate jump.
Debts with importers: Bopreal case
Last week, the bond for Importers began to be listed, through which the Central Bank aims to cancel the debt it has with that sector. Demand has been surprisingly low: It was expected that $750 million would be placed, but only $68 million was requested. In the City, it is believed that the very minimum exchange rate gap has not encouraged the appetite of importers, but that the situation could start to change this month.
“Today the Bopreal – without PAIS for those who sign up before January 31 – is worth an initial dollar of 1,187 dollars, higher than the CCL, of 940 dollars”, warned Fernando Marull, of FM y Asociados. “We insist that the ideal is to get out of dollar-linked bonds, strong dollars or stocks (which served as a hedge), to go to Bopreal,” he added.
Debt payment in dollars
In just over three weeks since Javier Milei’s presidential inauguration, the Central Bank managed to reverse its performance on the foreign exchange market and close the month with purchases of foreign currency for 3,000 million dollars. The organization’s reserves, which remain negative, closed the month with a slight increase compared to what was recorded in the last days of the “Fernández era”, reaching $23,071 million.
There are two deadlines this month that could put pressure on reserves. On the one hand, on Tuesday the 9th, Argentina will have to pay almost $1.2 billion to bondholders who agreed to Guzmán’s debt swap. Instead, it will face deadlines with the Fund for another $1.9 billion.
“Given the absence of external credit outside the IMF itself, reserve accumulation appears to be the way to meet debt payments,” they indicated in Delphos, warning: “However, reserve accumulation in 2024 will not will “might be possible without a significant contraction in imports, driven by a greater decline in activity, leading to a once again positive current account outcome”.
Source: Clarin
