This operation will be carried out with part of the pesos corresponding to the financial surplus achieved in the first half of the year, which accumulated to May amounted to $2.3 billion.
“The corresponding US$1.528 billion will be deposited in the trustee, Bank of New York, and will be available only to be used for the aforementioned purpose,” the Government announced.
The latest government measures for the dollar
President Javier Milei announced from the United States the beginning of a stage of “monetary tightening”whereby the Central Bank (BCRA) will stop issuing money to buy foreign currency, in order to contain inflation and the rise in parallel exchange rates.
A measure that will come into effect this Monday and is seen as “a new upgrade of monetary policy.” The Minister of Economy, Luis Caputo, He explained and answered questions from various netizens.
“From now on, the amount of money will remain the same or will be reduced (if the Central Bank were to sell dollars in the MULC). That is, if the BCRA were to buy dollars in the MULC, the equivalent issuance of pesos will be sterilized by the sale of equivalent dollars in the cash settlement market (CCL)” and he added: “To the extent that the BCRA injects pesos by buying dollars in the MULC, it will effectively sell dollars in the CCL to sterilize those pesos. That is, the amount of pesos will no longer grow. It will only shrink, since we have a surplus.”
“The peso will be the scarce and in-demand currency, since taxes will continue to be paid in pesos. The absorption is based on the amount of pesos. In other words, the Central Bank withdraws only the pesos issued and keeps the net dollars to the extent that there is a gap,” he concluded.
Criticism and doubts from economists about the monetary tightening policy
However, economists expressed themselves on the networks with great confusion, multiple doubts and strong accusations about the core of libertarian government.
Christian Buteler reflected: “Far from seeking a free exchange rate, there is increasing intervention, given that now the BCRA is SELLING dollars in the CCL (highly criticized, and rightly so, during the previous administration). Why not just run away and let the price be determined by supply/demand?”
“Dollars should be bought with a fiscal surplus, but (there is always a but) without replenishing reserves, how do you maintain the parity of bonds? If bonds do not improve, country risk will not decrease and the possibility of rolling over the 2025 maturities is moving away,” he added, and left another conclusion: “We are moving away from economic programs to get closer to saving measures that can reverse the result immediately.”
“The BCRA buys dollars cheaply from the exporter and sells them more expensively at the CCL and keeps US$ 37 from the exporter (100 bought less 63 sold). In other words, it defrauds the exporter twice: 1) when it buys his dollars at an exchange rate lower than the market rate and 2) when it uses his dollars by buying cheaply and selling more expensively,” he said, “Kirchnerism returned to power.”
“The macroeconomy in the coming months will enter a game of chicken. If the market believes that they are willing to do what they say, the dollar should stabilise and fall. If they believe that they will not do so or that they will not be able to sustain it, the stabilisation will slow down and with it the chances of recovery. If they succeed, they will have earned a second star and paved the way for the elimination of the currency controls later in the year, without which I believe there is no genuine chance of recovery. If they do not succeed, we will enter uncharted territory,” added Cohan.
“It’s difficult, but I dare to be optimistic. I think they are relying on one of their main assets. They are half crazy and like to win bets that nobody believes they can win. They are replicating the method that worked with fiscal policy now with monetary policy,” he concluded.
“It is clear that the aim of the announcement is to reduce the gap. We will finally see how much this new mechanism will result from the official rate to the parallel rate. In my opinion, instead of doing this, it is better to unify and use the rate.”
Fernando Marull, consultant at FMyA, summarized: “The BCRA will buy at Mulc and sell at CCL. With which bonds?”
For his part, Alejandro Cacace, parliamentary secretary of the radical bloc, highlighted four axes: “Sterilization serves to maintain the fixed exchange rate and contain inflation. It weakens the accumulation of reserves and reinforces the need for the exchange rate restriction to sustain itself,” he summarized in the first two.
He concluded by saying: “Differential exchange rates are detrimental to exporters: they are paid little for what they liquidate and are already affected by withholdings. It makes access to the dollar more expensive for importers, making it difficult to purchase inputs.”
Ramiro Castiñeira, director of the consulting firm Econometría, took the same line and summed up: “Economic growth (the economy has already bottomed out), the rebound in private credit, the investments that come with the RIGI and the money laundering, will increase the demand for pesos and the only source will be liquidity, currently in public liabilities.”
“The demand for pesos will increase due to these factors, in addition to the collapse of inflation. Without a new supply of pesos (zero emission), liquidity will gradually transform into genuine demand for pesos. If the private sector wants pesos, it will sell the LEFI to the State. As the surplus of pesos in the economy is reduced, there will come a point where exchange controls will no longer be necessary and Argentina will recover the exchange freedom that it always loses when Kirchnerism governs, among many other economic freedoms,” he stressed.
Source: Ambito
