Dollarization: Mattress was a bad deal in February

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The almost 14% collapse of the financial dollar last month shows that the dynamics of the foreign exchange market have completely changed in February: savers and businesses They stopped asking for dollars and started selling themin a square where the pesos have “dried up” due to the monetary policy decided by the Minister of Economy Luis Caputo and the President of the Central Bank, Santiago Bausili, since mid-December.

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Unlike of the rest of the prices in the economy – that although they have slowed down their rise, they continued to rise–, the parallel dollar It was one of the few prices that deflated. On the road, The blue also lost 13.8%, closing February at 1,030 dollars (e.g $1,050 Friday), almost the same value as at the beginning of the year.

The families and companies that had dallettled in the latter part of 2023 At the beginning of the year they saw how those dollars saved as coverage they have lost value of an inflation that galloped in the first two months at rates above 35%, according to projections by the City’s main consultancy firms.

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Both large players and small savers turned to selling part of those dollars, in a context in which the peso had strengthened.

“The peso market has dried up a bit for several reasons. Partly due to the need of the middle class to cover some expenses, which have become complicated and, well, they have to sell tickets to be able to go forward”, an expert Cuevero from the City explained to this newspaper, who underlined that these sales from some savers are unable to explain the collapse of parallel prices and the exchange rate gap.

“The big hands, the importers which he covered with tickets They moved on to Boprealthe link that the Central Bank created to pay off the debt with that sector, and they also prioritized access to the official dollar, as the opening of the MULC became normal,” he added.

In the month of January, the first signs of what was then strongly seen in the parallel of last month appeared on the official market. According to the latest monthly exchange rate report compiled by the BCRA, the number of people who turned to selling dollars in the official segment increased in January.

The official report reported that in the first month of the year, net purchases of the “savings dollar” in the formal market amounted to $2 million, an unusually low figure for this segment. This number occurred because $20 million was purchased, but another $18 million was sold, an unprecedented result in recent years. And another surprising fact: in banks there were 43.5% more sellers than buyers of dollars.

In February, even if official data are not yet available, everything indicates that this will be the case it deepened, with a strong impact on parallel contributions. Mariano Sardans, CEO of the asset manager IDFsaid that in recent weeks they seemed to “bring” dollars to Argentina, although he dismissed it as a fundamental change in trend. “We have seen inquiries from some clients who need those dollars to buy a field, renovate their facilities… however, we still see greater interest from investors and savers in “leaving” Argentina than in de-dollarization,” he said.

For Sardans what is happening is the effect of monetary policy: “What we are seeing is that people in certain sectors such as freelancers or real estate agents, who earn in foreign currency, sell those dollars to pay their current expenses . What happens is that with inflation at very high levels and the dollar stagnating or declining, These people have to sell more and more dollars to be able to meet the same expenses.”

This way, the savings under the mattress are devalued compared to the weight. This appears to be a turning point in the dynamics seen in recent months.

Pablo Repetto, from Aurum Values, He said: “During the first weeks of the Milei government, the demand for dollars increased significantly. In the first days of the new government the exchange rate gap, which after the devaluation had fallen to 8%, returned to around 50%. The prices of 1,300 dollars per dollar that financial prices had in January seemed exaggerated. And it also seems way below the dollar, close to $1,000 right now.”

In the City they warn that many of the factors driving the peso’s appreciation are “extraordinary and momentary,” and that it is thanks to the tight control of the fiscal account established by Caputo and the changes in monetary policy led by the BCRA.

For Manuel Cerdán, economist at Instead, This phenomenon is possible because until now the exchange rate remains in place. “Two factors largely explain the new dynamics of the foreign exchange market: a greater volume of regulated exports, which impacts both the Central Bank’s single, free foreign exchange market (MULC) and financial markets, since 80% it is regulated. and 20% cash with liquids,” he said and added: “The other factor is that imports are still pending: In the December-January period, only 20.6% of accrued imports were paid; In February he was paid more, but it will still not be a very high figure.”

In January the Central Bank authorized imports of 1.5 billion dollars, when the normal level for that month is around $4.5 billion. The market estimates that since Milei took office, the debt for “new” imports is close to $5 billion.

Jorge Vasconcelos, economist at IERAL and Mediterranean Foundation, stressed: “The narrowing of the gap accompanied by lower monetary expansion means that the pass-through of the December devaluation to prices is smaller than that observed at other times of exchange rate jumps, such as in 2014 or 2016. And it is helped by exporters who continue to settle in cash with liquidations and for repressed imports. And neither of these things happens in a healthy macroeconomy.”

For this reason, they warn that the positive trajectory of dollar purchases that the Central Bank has maintained since mid-December could come under pressure, which in turn would mark the days of this exchange rate summer. “Since the December devaluation, the exchange rate has appreciated by more than 30% in real terms. Ultimately the BCRA will have to accelerate the pace of the creep step or make another discreet and riskier adjustment,” Cerdan said. “If not, it could return to November levels by May/June. If the strategy is not changed, the pressure on the exchange rate will increase.”

Source: Clarin

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