On August 1, 2024, the selling price of the blue dollar was $1,380, while at the end of the month the purchase price was $1,275. Therefore, $100,000 converted into dollars in August would have become just over $92,391which would have implied a nominal drop of 7.6%.
On the other hand, a fixed term at the beginning of August offered an annual nominal rate (TNA) of 40% and a monthly rate of 3.33%hence A $100,000 deposit for 30 days would have generated a nominal profit of $3,333. In total, Savings at the end of August would have been $103,333.
Weight the big winner
For GMA, 2024 “It is proving to be a great year for the Argentine peso”With a new economic program, the peso strengthened against the official dollar (-40% real) as well as against the financial dollar (-35% real).
On the other hand, the high nominal rates in pesos in our market (which compete against a declining but still significant inflation) have led to a new successful period of carry trade. Despite some volatility in the financial dollar since April, the fixed-term deposit has yielded extraordinary returns in dollars. These have been 17% in the first 8 months of the year, the highest figure in more than a decade.
GMA analysts also point out that these cumulative fixed-rate returns are among the top three in emerging markets this year. While the Turkish lira carry rate is in first place with 23%, the Russian ruble (17%) shares second place in the ranking with the Argentine peso.
In this way, after comments from the Minister of Economy indicating that the financial dollar would converge to the official exchange rate, the market begins to wonder whether stretching this carry trade is plausible. Faced with this idea that is already spreading like wildfire in the city and abroad, we study drivers and risks of this strategy.
Strategy: the drivers to consider to know how long the carry trade will continue
1. The intervention of the BCRA
For GMA, one of the main factors that encourage carry trade is the intervention of the Central Bank in financial dollars, since phase 2 began.
2. The laundering
On the other hand, they add, the externalization of assets would also be a new source of dollars for the local financial system. Although estimates vary, figures between $30 and $40 billion are repeated. Of course, this is far from the $116 billion of the historic money laundering of 2016, but it would still imply another important tool for the current administration.
As a result of cash laundering, the BCRA’s gross reserves are already benefiting from the increase in dollar deposits, the stock of which has already returned to December 2019 levels.This improvement in the monetary authority’s balance sheet can be seen as a positive signal for the market. There is also the possibility that the entry of dollars into the financial market would also bring a selling flow in the MEP and the CCL, which would contribute its share to the stability of the gap.
3. RIGI
Also in relation to the supply of dollars we find the RIGI. The Management Report presented to the Chamber of Deputies indicates investments of over US$40,000 million. The decisions of companies to sink physical capital, and therefore, New dollar flows would help stabilize the gap without the need for significant use of BCRA reserves.
4. Inflation
The increase in the cost of living, for its part, remains stable at around 4% per month. “Continue with the process of disinflation is key to prevent the current exchange rate regime imply an excessive appreciation of the Argentine peso and compromise the generation of dollars and the ability of activity to recover,” the economists warned.
A good inflation figure for August and declining high-frequency figures for September would avoid pressure on the exchange rate and give breathing room to the gap.
5. No excess weight
As the final driver of the strategy of carry trade We find the current low money supply. The monetary base has recently increased to almost 4% of GDP (twice as much as 6 months ago), although this level is still historically low.
Remonetization, which would bring the stock of pesos to a desired 9.1% of GDP, is expected to occur gradually and progressively. This same logic could be replicated for the rest of the monetary aggregates, which would be boosted by secondary money creation through credit expansion.
In this way, the increase in the amount of pesos would seek to accompany the growth of the economy, limiting inflationary and devaluation pressures. The closing of the “issuing taps” and the cleaning of the stock of remunerated liabilities has provided some peace of mind. There is no longer a huge surplus of pesos that can be quickly turned over to demand financial dollars.
Pressure on the gap?: what factors need to be taken into account
For GMA, one of the risks is commercial. For this month we should observe a normalization of the flow of foreign currency in the foreign exchange market, mainly from the private demand for foreign currency, which would boost the volume of the MAE. On the one hand, it would do so through the effect of the reduction of the PAIS tax, which would increase the demand for goods due to the price elasticity of imports.
On the other hand, we are faced with the factor of the import payment schedule, which accelerates foreign exchange requirements.
One last point, is the pressure on financial dollars. “As the foreign exchange rate could decline on the commercial side, the dependence on the financial account should increase in order to ensure that the health of the economic program does not lose vigor,” they said.
“However, financing needs through this means are subject to several complications. In particular, we find the hard currency maturity schedule. Excluding the IMF, there are commitments for US$2.1 billion in terms of maturities with international organizations in the next six months“, they concluded.
Source: Ambito
