A month after the presidential inauguration, the market went from euphoria over the change of political direction of the Casa Rosada, to caution over the direction of the economic plan and the challenges that still provide an extra dose of uncertainty in this first phase of government by Javier Milei.
Without a doubt, the main change promoted by Milei’s economic team, led by Luis Caputo, was the jump in the official dollar. The 54% devaluation.The December 13 wholesale exchange rate rearranged all financial variables.
After a 118% rise in a single day, in which the wholesale dollar went from $365 to $800, the Central Bank validated a 2% monthly increase for the rest of December, a pace it appears willing to maintain this month. In a market still virtually closed, the wholesale exchange rate will open this Wednesday after hitting $814 the previous day.
The devaluation sent a shock to the rest of the prices in the economy. Only on Thursday will its real impact on the consumer price index reported by the INDEC be known. The President has already announced that if December inflation will be about 30% will be “a large number”.
The jump in devaluation managed to reduce the gap from the bottom, which reached historic lows in the last two weeks of 2023. On Monday 11 December the market opened with a Milei who had just arrived at the Casa Rosada and a gap between the exchange rate at wholesale and financial sectors which exceeded 170%.
The adaptation “from the floor” of the gap had an initial positive impact on the parallel prices of the dollar. The currency gap was narrowed to the unexpected single-digit level. However, since the beginning of the year, with the “Caputo plan” on the table and the ambitious economic reform to which Milei aspires, already reflected in a DNU and in an Omnibus bill that will have to be approved by Congress, it slowly started to overheat again.
In closing this note, the exchange rate gap had remained at 47%, a level significantly lower than that seen in the last rounds of the Alberto Fernández era, but which is higher than what the market has deemed “comfortable” for these first months of the libertarian’s mandate.
From start to finish, parallel dollars, which have been heating up this week, have been accumulating over the past 30 days 19% in the case of the CCL, which went from 999.7 dollars to 1,193.5 dollars with which it closed on Tuesday; another 16% for the MEP or stock dollar and a 12% for the blue one, which closed at a record $1,120 on Tuesday. All of these adjustments have been well behind the jump in prices in the economy over the past month.
In the City they are already starting to monitor the exchange rate gaps and doubts are growing about the inflationary impact on the real exchange rate and the possible need for the Caputo and Santiago Bausili tandem to validate a new devaluation in the first quarter of the year.
Diego Martínez Burzaco, of Inviú, underlined: “The program of liquefaction of peso monetary reserves, as a result of an inflationary acceleration combined with a decline in the reference interest rate, is somehow making its weight felt in this moment, with the sharp rise of free financial dollars, which not only recovered lost ground, but also reached new highs in nominal terms.”
For the economist it is not strange that the gap has widened settled at levels between 40% and 50% in the context of an exchange rate that appears not yet to have begun to be dismantled, but noted: “One way or another this may put pressure on a further cycle of inflation, and I believe we are in a situation where the anchoring expectations towards the future is very important, especially to make society as a whole and also investors understand that there is a light at the end of the tunnel.
Market caution is also reflected in the prices of Argentine companies trading on the stock exchange and in bond valuations. In the midst of a market rally the week Javier Milei took office The Merval index reached, measured in dollars, US$997.12 and has accumulated a decline of 10% in the last 30 days.
Even the valuations of dollar bonds say that “the foam has calmed down” and the market opts for caution while Milei defends his plan on the political and economic front: in the last 30 days all the prices of Argentine public bonds show a negative balance . The country risk went from 1,923 points on December 10th to 2,102 units this Tuesday.
Source: Clarin
