The financial market had a more auspicious September than expected. The tailwind for emerging markets that implied the beginning of the Fed’s rate cut and the jump in dollar deposits due to money laundering revived the citythat celebrated the carry trade boomsponsored by the compression of the exchange gap, and the bond rally. But not everything is euphoria. The main Economic agents still view the outlook for 2025 with distrust. He foreign exchange hole in net reserves remains almost intact and Analysts predict difficulties for Luis Caputo’s plan.
The exchange rate calm lasted longer than expected. In September, the dollar cash with settlement (CCL) fell 4.2% and at the end of this week the gap with the wholesaler contracted up to 25%. The Central Bank began October with currency purchases. The compression of the exchange spread favored carry trade bets. In addition, dollar bonds are going through a bullish streak that has led them to accumulate an increase of 20% on average since mid-July.
The bleaching bridge
The better international context for emerging markets as a result of the US Federal Reserve’s rate decision contributed. Although capital regularization was also decisive. “After the first stage of the bleach of cash on September 30 (now extended to October 31), the increase in dollar deposits from the private sector in banks “It is much higher than anticipated,” said Quantum Finance.the signature of Daniel Marxin a report for their clients. The increase was about US$13,000 million, going from US$18,400 million in mid-July to US$31,400 million on September 30.
So far, the impact on the BCRA’s gross international holdings is marginal. “In the face of uncertainty about the evolution of increased deposits (withdrawals and investments of depositors), “Banks are keeping a high proportion of the dollars received in their treasuries.”Quantum indicated and calculated that, of the US$13,000 million deposited, US$10,000 million were still in the vaults of financial entities as of October 1 and that Only US$1,954 million became part of the reserves. “It is estimated that most of the difference was channeled into loans to the private sector,” the report added.
As Ámbito said, The increase in credit in dollars to companies is one of the bets that Caputo clings to to get through the most challenging months for currency flow. Especially October and November due to unfavorable seasonality and the extra demand implied by the overlap of the old and new import payment scheme. Between mid-August and the end of September these loans They grew close to US$1,000 million and gave oxygen to the BCRA to close last month with a purchasing balance of US$373 million.
This type of credit, by regulation, must be settled by the companies that take them on the official market and add supply to that market. Although it is considered that this is an “inflated offer” since, when these credits expire, the companies will ask the Central Bank for the dollars.
Quantum also linked the rise in dollar bonds to money laundering (in addition to the global context): “It is possible that at least part of the increase in funds laundered through private sector deposits in banks is being channeled into various investments, including Argentine sovereign debt securities.” . According to their calculations, these assets grew on a weighted average from US$44 to US$53 per US$100 of nominal value since mid-July.
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Dollar: uncertainty is not clear
However, the outlook is not clear for the future and the City remains alert. The truth is that the one-month extension of the first stage of the whitewash could extend the respite a little longer for Central. A report of the consultant 1816 stated that, as a result of the strong growth of deposits in dollars, It would not be strange if the stock of loans in dollars “grows significantly” in the coming months and asked himself: “US$5,000 million?” If realized, this would alleviate the performance of the BCRA in the official market in the short term, although it remains to be seen how much of this materializes.
Regarding parallel dollars and the gap, the consulting firm detected a central factor when explaining the recent decline: “The advance of the Personal Property Tax (within the framework of the special regime) and the moratorium generated an extraordinary demand for pesos for up to US$950 million in September (that was the Government’s collection for both taxes measured at the financial exchange rate), an amount not so far from what CCL’s supply contributes to the exporting blend every month. That flow must have been key to explaining the very limited volatility of the dollar and the exceptional performance of the carry trade in recent weeks.”
But It is an ephemeral spare wheelso the stability of the gap is not guaranteed for the last part of the year. “Without that ahead, during the fourth quarter of 2024 The Government has firepower if it wants to contain the CCL“Not only thanks to the options generated by the extraordinary money laundering numbers, but also to the fact that since July the BCRA bought more in the MULC than it sold in financial dollars,” said 1816, although he clarified that “greater intervention in (or sterilization of pesos via) the MEP by the Central it would be at the expense of net reserves”.
The reserve hole and the pressures on the exchange rate scheme
Fairly, the biggest factor of concern is the bulging red of net reserveswhich exceeds US$5,000 million, and is what raises the alerts for 2025. Above all with a Government that seeks to get the market to buy the continuity of its exchange rate scheme and that relies on it as a way to try resume a path of slowing inflation starting in September that had been interrupted between May and August.
A report that SBS Group sent to his clients stated that, despite the current exchange rate calm, “the challenges in the exchange rate are far from being resolved” and “they are the biggest unknown going forward”. “We say this because the real exchange rate continues to appreciate, net reserves continue in negative territory and there is no news regarding the removal of exchange controls,” he added.
In addition to the challenges of containing inflationary inertia, the firm considered that “both the negative level of net reserves and the important stock of pesos (monetary aggregates plus debt in pesos) “They limit the Government’s propensity to remove controls.”. This combo “could put pressure on exchange rates, implying inflationary pressure, something that the Government seeks to avoid at all costs given that it is one of the economic achievements that it can show up to this point,” SBS emphasized.
In the same sense, 1816 stated that “The dynamics of the external sector continues to be the central risk when we think about a 2025 exchange rate status quo”. And he stressed that in the July-August two-month period, Argentina had a cash-based current account deficit of more than $2.9 billion, due to the blend, the exchange rate appreciation and the maturities of external debt. “It is something that, taking a two-month period from 2023, has not been seen since before the balance of payments crisis in the second quarter of 2018 during the Macri administration,” he warned.
The result is that, in the third quarter, the BCRA lost net reserves and ended up more than US$2 billion below the goal committed to the IMF. Beyond the fact that the money laundering bridge and dollar loans to companies can reduce the bleeding in the last part of the year, The red of net reserves predicts a lower stress in 2025, at least under the current regime. Marina Dal Poggettoholder of Eco Gonoted this week that The Government lacks US$20,000 million to sustain the current exchange rate scheme during the next year. It is a figure similar to what had been estimated by the CP consulting (US$29.7 billion), among other things due to the large maturities of external debt.
“The main challenge comes from the external accounts, with no significant flows in sight to reinforce net reserves despite repo rumors,” said the SBS Group.. As Ámbito said, Caputo seeks to expedite Repo-type loans with international banks, although high official sources told this medium that, although there has been progress, “there is still a long way to go.” The Government wants to agree on a single-digit rate and a term of more than one year, but the negotiations are complex. In his first nine months, the external credit that he had promised so much to protect his program proved elusive to Javier Milei’s management.
The truth is that, Given the currency hole, the prospects for continuity of the current exchange rate scheme are called into question. Thus, the consultant 1816 shuffled three alternativeswhich can be combined, to try to shore up the stock of net reserves or, at least, mitigate its fall.
The first is that the exchange rate be released “so that the balance of payments adjusts by price,” although he considered that seems unlikely for the short term. The second, that the blend scheme be eliminated which derives 20% of the liquidation of exports to the CCL market and prevents it from entering the Central coffers: could add US$16.5 billion in supply to the official marketestimated 1816, but “it could risk” the stability of the CCL (something that could try to contain using part of those currencies to intervene in the gap). The third, appeal to financing in dollars. On this last point, Caputo ruled out the issuance of Letes in dollars to recycle the laundering dollars and official sources consulted by Ámbito ruled out negotiations with the Bank of Basel. They do try to obtain external debt via the aforementioned repo and through a negotiation with the IMF that is still in its infancy. In any case, The challenges to the official program have the dollar as the main axis.
Source: Ambito
I am an author and journalist who has worked in the entertainment industry for over a decade. I currently work as a news editor at a major news website, and my focus is on covering the latest trends in entertainment. I also write occasional pieces for other outlets, and have authored two books about the entertainment industry.
