However, the strategy to contain the exchange rate gap was not the only move by the Government that influenced the market’s mood.
Faced with doubts regarding the sustainability of the exchange rate delay and the resignation to a lower accumulation of foreign currency, presidential spokesman Manuel Adorni assured that They are not concerned with the dollar or country riskafter having surpassed 1600 points. “What worries us, occupies us and keeps us awake until we finish solving the problem is weight.“, the official maintained.
Focus on the peso: three keys that confirm the Government’s program
Along the same lines, the economic team took to the field to ratify its fiscal and monetary anchoring, advancing on three complementary fronts: migration of debt from the BCRA to the Treasuryafter the debut of the Liquidity Fiscal Letters (LEFIs), put buyback for an underlying of $13.17 billion and drop in the rate of active passes from 60% to 48%.
“Less weights”, is the mantra that is repeated in the corridors of the Ministry of Economy, to such an extent that the representative of (…), Luis Caputo, assured in X that “Soon people will have to sell dollars to pay taxes and the peso will be the strong currency”.
His statement generated a backlash on social media and in the media, forcing the Minister to explain what he meant: “Once again, in the competition of currencies, the strong currency will be the peso. Those who are buying dollars today thinking that it could be a good investment, I am warning you that it will not happen.”.
Will Caputo be able to claim the idea of losing by betting on the dollar, after the failed experience of the Former Minister of Economy Lorenzo Sigaut in 1981, which ended in a major devaluation? The market still defines whether to believe that everything will turn out well or not to see it.
At what dollar is the gap unified, that is the question
For the moment, there is one thing that is clear: in this kind of impasse in which it finds itself with the Government, The difficulty of accumulating foreign currency in the second half of the year, together with the use of dollars to reduce the gap, worries him..
Part of this was raised by the company specializing in stock brokerage, SBS Groupin its latest report: “The government faces a significant challenge given that, seasonally, the BCRA is a net seller in the MULC and“in the 2nd semesters.”
So, for SBS the doubt is in the sustainability of an exchange rate that travels at a rate of 2%. “We believe that although we could see some one-off due to money laundering/RIGI in these months, The government will eventually have to take action on the TCRwhich in our opinion will have to be implemented sooner rather than later”, he responds in his analysis.
For the consulting firm 1816, the Government will only be able to achieve its objective – unification without a jump in the official dollar – if it convinces the market that it will stay the course regardless of what it eventually decides.
The scenario compatible with the exit from the cepoaccording to its latest report, It is located two months agos, where the gap was barely above the PAÍS tax and breakeven inflation (BE) was in the 3% zone. Now these indicators have risen to 42% and 4%, respectively.
For this reason, 1816 believes that the key will be in the evolution of the gap in the coming months.Our base scenario is that unification will occur this year because we assume that it would be with a jump in importing FX.(…), but we recognize that, if it were possible to unify it without an increase in the import FX, this risk would be trivial and the timing of the lifting of the restriction would no longer be clear,” he says.
If the gap does not narrow, if “not everything goes well,” the market will begin to anticipate intermediate scenarios where a unification requires a jump in FX, the consultancy estimates.
BCRA intervention: expectation or reality?
How much does the BCRA help to ensure that “everything goes well”? According to Portfolio Personal Inversiones (PPI), the increase in the volume traded in AL30 and GD30 C and D from an average of The daily US$3.9 million and US$23.8 million in the week before the new scheme, and US$12.7 million and US$75.3 million between Monday and Thursday “suggest that there would be some official presence.”
However, they do not rule out “genuine selling flow” at the opening on Monday in light of the signals from the economic team and “genuine buying flow” on Tuesday, when the CCL touched a low of $1255.The net reserve stock of -US$6 billion makes the statements that the BCRA would sterilize $2.5 billion seem unbelievable”PPI alert.
The day after the PUTS cleared
Meanwhile, the BCRA announced that the banks, holders of the liquidity options associated with public securities (puts), accepted the termination offer for $13.17 billion. For PPI, the result is “satisfying” but not “so relevant” given that Banks cannot dollarize that position due to current regulations.
Necessary but not sufficient? As Banks own around 50% of the treasury debt in pesos in the hands of the private sector, for the consulting firm “Treasury will offer an exchange on the titles without putsso that banks can readjust their portfolios without harming the curves.”
However, The latest reduction in the active transfer rate from 60% to 48% indicates, for the moment, the opposite.. “The fact that the BCRA lends money at a lower rate in case the banks require liquidity indicates the possibility that there will be no swap,” estimates the economist from the OPEN observatory, Federico Machado.
The transfers are out, the LEFI enter the field, with a rate increase included?
Next Monday the new LEFI will replace the passive passes, whose stock as of July 16 amounted to $11.8 billion. Could a change in monetary policy instrument lead to an increase in the rate?It is not clear to us what the Central will do.“, answers 1816.
“Maintaining the rate at 40% would be a sign of the conviction to maintain the downward trajectory in all nominal variables. Raising the rate, could deal the final blow to a bearish CCLwhich could accelerate disinflation,” the consultancy analyzes.
That said, the impact that a rate hike would have, for SBS, “will have to be carefully calibrated.” As the movement would put greater pressure on the Treasury, “it makes it more necessary than ever to provide greater solidity to the fiscal anchor”, while potentially adversely impacting a hard-hit industry.
Country risk: secondary for the Government, key for the market
In any case, for Consultatio, the Government looks at the pesos, but the market at the dollars. In that sense, and in a week where the country risk remained in the area of 1600 points, the financial services company wonders How long will the gap compression last with a rising country risk?.
”The Government needs to accumulate dollars to lower the country risk to levels of 800 bps and regain access to voluntary market financing”, in view of the maturities starting in 2025, says Consultatio.
Although the Government insists on removing them from the scene, He knows that he will only be able to pay the debt with dollars. For this reason, the Secretary of Finance Pablo Quirno announced last Sunday that the Treasury purchased and transferred US$1.528 billion to the Bank of New York to cover the interests of Globales and Bonares in January 2025.
And what about capital? The president himself answered that question yesterday: “We have already set up the repo for next year in case we want to go to the market and we don’t have the money to refinance. So we pay whatever happens. The interest rate will inevitably collapse when it becomes clear that I am solvent. I have already deposited the money for the interest and if I can’t roll over the capital, I have the repo booked.”
Source: Ambito
