Dollar: what will happen to the crawling peg
The Central Bank reported that it will increase intervention in the exchange market -as it has already been doing but in the segment of financial dollars- and it will manage the pace of the devaluation, although it did not give further specifications.
Until now, the monetary authority had slowed down the pace of the peso’s depreciation so far in May, after accelerating it in line with the inflationary trend last month. As indicated by Portfolio Personal Inversiones (PPI) in a recent report that the crawling peg it was cut from 165.1% of the Annual Effective Rate (TEA), which averaged last April 26, to 125%.
For Claudio Caprarulo, economist and director of Analytica, “without dollars there is not much room for the crawling peg to drop sharply.” And, thus, as indicated by Glustein, this strategy that has been observed in recent days could respond to “some type of strategy to negotiate a greater flexibility of the program agreed with the International Monetary Fund (IMF)”, taking into account that the organization It requires the Government to seek to keep the different rates of the economy aligned and considering the fact that it has already obtained the consent of the fund to be able to intervene in financial exchange rates.
What will happen to the rates?
The Argentine central bank (BCRA) will raise the reference interest rate by 600 basis points to 97%, from the previous 91%, to try to contain the galloping inflation that in April reached 109% annually, an official source said on Sunday. with knowledge of the subject. In this framework, the TEA will remain at 152% while the TEM will be around 8%. “There were proposals to take it above 100%, up to 110%, even, but that figure was finally set,” said a source. According to the survey of market expectations, the expected inflation for the next 12 months will be 146%, however it does not contemplate the probable readjustment that economists will make after the 8.4% in April.
On the “hunt” for dollars
The Ministry of Economy is rushing to speed up the agreements with the International Monetary Fund (IMF), Swap with China and the guarantee via BRICS of Brazil. In this regard, Sergio Massa will travel to Beijing on May 29.
It is expected that China will enable the fifth tranche of the swap granted to Argentina, with which the Government could have some US$1,000 million available before the end of April. It would be the last tranche negotiated with the People’s Bank of China at the end of 2022, which enabled conversion operations for a total of US$5,000 million to be disbursed at a rate of US$1,000 million per month. The first tranche was granted in December, thus remaining the last step to complete what has already been negotiated.
As for the International Monetary Fund, they maintain that “The focus of the discussions that are taking place now, for the fifth review, has been on strengthening the authorities’ program taking into account the impact of the drought.” The current situation in terms of reserves is critical, according to private studies. For example, Econometrica has just released a report in which it maintains that the net foreign assets of the Central Bank (using the Fund’s methodology) are negative by USD 1,000 million, with an accumulated loss for the year of close to USD 8,700 million.
It is in this context that the Argentine authorities and the representatives of the IMF they are rethinking the short, medium and long-term objectives of the program. It should be clarified that this is not a new program, which would have required congressional approval and the search for special majorities, but rather a redefinition within the agreement already reached.
In this sense, Massa maintained that the front load (advances) is one of the tools that the Fund has by statute. According to reports, the aspiration of the economic team would be to advance disbursements for more than USD 10,000 million to strengthen the BCRA reserves.
However, news from Washington indicates that within the organization’s Board of Directors there is resistance to advancing this sum to Argentina.