The Central Bank Accelerates Devaluation: There is a key factor

Under the umbrella of the soybean dollar and the 1.66 billion dollars that agro-exporters have downloaded during this week, the Central Bank found the gap to accelerate the devaluation rate of the official exchange rate and bring it closer to the speed of inflation.

The wholesale exchange rate went up $ 2.35 in the last five reels and finished on Friday in $ 141.38. It was the most important weekly correction of the past three years, according to operator Gustavo Quintana.

Until August, the dollar lost dramatically against inflation: it was advancing by only 37%, compared with 55% of the estimated inflation in that period.

If we look at the monthly projections, the official dollar and inflation are at par in September. The Equilibra advisory reports that the Central Bank has raised the official exchange rate to one peg of 6.2% monthlyabove the effective monetary policy rate of 5.8%. At the same time, the Central Bank’s Market Expectations Survey (REM) estimates 6% for inflation this month.

This week the peg for crawling the official dollar devaluation rate, reached 110% in the annual projection. This level was reached on the same day as the REM, which it predicts a consumer price index of 95% for this year, although several consultants already estimate it to be 100%.

“The strength of the” soybean dollar “to bring dollars allowed the Central accelerate the devaluation rate to close the gap and moderate its asset deterioration, without worrying about the incentives of the soybean farmers, “they explain from GMA Capital and detail that the depreciation rate reached 110% this week.

It is no coincidence that this acceleration of the peg for crawling it came at the same time as the launch of the soybean dollar. In this mechanism, which will be in effect until September 30, soybean producers receive $ 200 per dollar instead of $ 141 what happens to other exporters. The gap between one price and another is covered by the Central Bank with monetary issue. Specifically, this week dedicated to that task Another $ 101.5 billion (0.1% of GDP, 2.3% of the monetary base), indicate by Equilibra.

“Due to the perverse dynamics caused by the exchange rate differential, the monetary cost will be lower to the extent that the official price is higher “, GMA points out.

The REM projection is that the official exchange rate will close the year $ 170.11, which would imply a 20% down payment in the last quarter.

With this more rapid devaluation, for the first time since March 2021, “the exchange rate is moving above inflation and above the interest rate,” GMA says.

For Equilibra, if the dollar equals inflation, it loses relative to the interest rate. “This should increase by at least a few 550 basis points (up to 75% per annum, compatible with an effective monthly rate of 6.3%). In recent days, the market expects the Central Bank to raise the monetary policy rate to take it from 69.5% to 75%. The announcement could come next week, when inflation, which would be around 6.5%, will be released in August.

Impact on inflation

What is the impact of the growth of the official dollar and inflation at the same time? On the one hand, this helps narrow the exchange rate gap, which analysts say will eventually close due to the official rise rather than the marked decline in alternatives. But at the same time, sets a higher limit for monthly inflation.

With these numbers, the gap between the alternative dollar and the official dollar remains 100%, the low point in two months.

With a narrower gap, there are more incentives to liquidate exports, as the soybean dollar demonstrated this week. “The dollar at $ 200 has had the desired effect, the dollars enter the BCRA as expected and a small relief is placed on the external front“, analyzes Guido Lorenzo, of the consulting firm LCG.

However, Lorenzo warns that the soybean dollar also brought “the unwanted consequences of an acceleration of inflation. Perhaps in September we will see higher inflation rates which, according to our records, appear to be at a low of 2% per week. “

“The expectation that the dollar could rise to a higher level, plus the effect of tariffs and inflationary inertia, lead us to estimate that September inflation could be in one of the highest levels of the year, around 7%Lorenzo points out.

AQ