Monday , November 30 2020

Monetary shock: The dollar returns to the bottom of the band and the central will go out to buy

The times of the battle and the lack of coordination between the Ministry of Finance and the central bank were left behind. In a very well-coordinated move, Nicolás Dujovne from Washington and Guido Sandleris made the most relevant economic policy announcements for the rest of 2019 in Buenos Aires on Thursday. The government put on the table what it should get in the best possible way for the election. Will it reach you?

Without any progress in structural reforms or solving fundamental problems in the Argentine economy, the strategy of the trident IMF Treasury central bank pursues a single goal: to keep the dollar completely dominated for as long as possible. Interior Minister Rogelio Frigerio said during his visit to Expoagro: "Our main goal is to avoid another currency crisis".

Erasing the exchange rate, according to the official vision, would not have the negative effects of other opportunities. As described by Sandleris, the current exchange rate is "60% higher" than that of the stock exit. It would be excluded the possibility of currently falling into new currency reserves.

Stopping the dollar would have two primary goals: the first, to avoid new anxiety conditions such as those experienced in 2018 and the second, to anchor inflation expectations. Without additional tariff increases, a silent exchange rate and the maintenance of the "zero emission plan", inflation is expected to begin to fall in May.

Negotiation with the fund to enable sales of DKK 9,600 million. USD until the end of the year deserves a separate chapter. It was necessary for Dujovne to meet with the agency manager, Christine Lagarde, to allow him to spend that amount of money. First, it was agreed that sales would begin in June and for a figure close to USD 8,000 million. But at the end it was agreed to go out to sell from April, even when it was assumed that the settlement in the agricultural sector would flood the local market.

According to the estimates published by the Treasury, The field will contribute DKK 25,000 million. USD of harvest. But the fear is that they end up entering very few of these dollars. Just enough to pay off the debt. Most of the currencies will remain outside the country pending the outcome of the presidential election. In order to reduce the country's dependence on foreign currency during the period prior to the election, it was decided to maximize the agreement with the fund. "If everyone postpones decisions until they see the election results, the field will surely do the same," they admit to the government.

The combination of a greater supply of dollars over weeks and the continuity of the monetary press yielded the expected result. It contributed greatly to the international context that the last two weeks have favored the new countries. All currencies were revalued against the dollar, but in the case of peso the movement was higher.

As a result, the exchange rate was again close to the band. Wholesaling closed at $ 40 and the floor of the "zone of non-intervention" is $ 39 closed by only one peso away. The goal of increasing the supply of dollars since April while maintaining high real interest rates (the benchmark was over 63% against an expected 30% inflation over the next 12 months) points to a goal: the currency re-drilling the bottom level of the exchange band. It's already a step away from reaching it.

In the "benevolent" scenario, The central office will buy dollars again, although it was stated that it would be a maximum of USD 50 million a day. If a small wind blows in favor, the figure may be insufficient to avoid further fall in the exchange rate. These purchases involve a real increase in the reserves. At the same time, it will allow the injection of pesos to ease the rate and help restore the economy. But it is a double-edged sword: every peso issued can be used earlier or later to buy dollars.

Another problem with the plan designed with the fund is that it prevents going out to sell the reserves purchased under this scheme if it is necessary to calm the dollar. The lack of tools forced the central bank to raise interest rates sharply since mid-February to curb further dollarization.

Securing a dollar supply amount and maintaining high interest rates is most that the economic team can do to meet the election and the exchange rate does not go down.

However No one is able to predict the extent to which foreign currency demand can rise when STEP & # 39; s approach in August, and then in October elections. Each provincial election and each survey now becomes the best thermometer to measure the behavior of the exchange rate.

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