Dollar: the hacks of the Central Bank’s strategy to contain it until STEP

In the first half of July the Dolar blue it shot itself. The informal currency rose more than $30 in a weekscored a new nominal record and set off alarm bells in the market that, after a lucky exchange rate summernow once again question the response capacity of the Central Bank (BCRA) before a possible run against the weight, which could be given as the elections approach primaries (STEP).

With the reserves net of Central Bank of the Argentine Republic (BCRA) in red, the agreement with the International Monetary Fund (IMF) becomes critical so that the macro arrive with oxygen to the polls. However, there is a buzz in the market that the transaction with the agency would close after PASSTherefore, the tools to inflate the BCRA’s coffers are few and containing the exchange rates between now and August 13 represents a fine task and puts the Government under the sword of Damocles.

In that sense, take strength a new edition of the differential exchange rate for agricultural exports which, according to different analysts, would be around the $370. Likewise, the Government will seek to reduce the upward pressure of the dollar until the STEP avoiding social unrest and an adverse effect on the elections. selling dollar bonds to placate the stock exchange rateswhich has had some success in its objective, but has not been enough to stop the escalation so far.

Negative reserves and exchange rates

According to data from the consultancy 1816, the net reserves, which are what give the Government the capacity to face headwinds in the exchange market, they are negative in about US$7.300 million. From the consultancy, they maintain that “nothing indicates that the sales dynamics of the BCRA will change significantly, at least until PASSED”.

Salvador Vitellihead of Research at Romano Group, in statements to Ambitlabeled the situation as “not encouraging”, since the further strengthening of reserves, “how are the conditions”, would come from the agreement with the Fund, so that, if it is kicked off after the STEP, the Government I would be left with reduced ammunition to stop the dollar.

For Vitelli, the exchange scenario “does not look too favorable for the second semester”. And he maintains that the agreement with the Fund would allow, in any case, to reach “with negative net reserves at the end of the yearprobably”.

The agribusiness expert slips the urgency of a “dollar soybeans 4”, since the liquidations of the sector are collapsed and warns that, “as long as there is no differential exchange ratethat will hardly change”. Above all, because the prospects They are set on either a new soybean dollar or a devaluation post assumption of the new government”.

Dollar: one pax exchange rate at sight

For Maximilian Ramirezfrom the consulting firm Suramericana Visión and former Undersecretary of Macroeconomic Programming, for his part, when talking about firepower Over the alternative Dollars, It must be taken into account that the jump that occurred in recent days in exchange rates, “the only thing that was to align them again with the inflationary dynamics“which, accumulated to June, with the data of 6%, shows 51.2% so far in 2023”. In this sense, the analyst advances some points to take into account:

• Alternative Dollars Adjustment: Overall, alt dollars are up around 50% since last December, though some are up 51% and others 49%. This indicates that they have returned to adjust in line with inflation.
• exchange rate stability: Unless some disruptive situation occurs “not identified so far”, it is likely that there will be no sharp changes in the exchange rate. “This suggests that there will be exchange rate stability in the short term.”
• Buying dollars and selling yuan: In contrast to what had been happening, in some wheels, recently, in the Single Market and Free Exchange (MULC), the BCRA was able to buy dollars and made small sales of yuan. This action is related to the pending negotiations with the IMF and seeks to manage the amount of yuan while waiting for an agreement.
• Generation of tranquility in the market: The purchase of dollars by the Central Bank and the management of the yuan could generate some peace of mind in the market, since it is interpreted as an attempt to manage the situation and move towards an agreement with the IMF.
• Impact of tourism on the demand for dollars: Tourism is an important source of demand for dollars. The number of people traveling abroad despite the exchange rate can cause market disruptions and increase demand for US currency. In that sense, Ramírez does not rule out the possibility that more taxes will be applied to this type of expense or some type of regulation is used to make travel more expensive and reduce demand.

And I add: “More firepower than that is not going to have. The truth is that there are not many other alternatives”.

Soybean dollar 4: the common denominator among analysts

In view of the inquiries made by this medium on what tools does the government have as firepower to contain the dollar, the common denominator among the voices of the City is the differential exchange rate for the soybean complex in a fourth edition.

Today, the priority should be focused on obtaining dollarssince they are the only guarantee of the weight and where the market puts the magnifying glass to intuit if “the correction of the official exchange rate will occur before or after the elections”, argued the economist Natalia Motyl.

To achieve this, one could resort “again to the differential exchange rate, creating a new dollar linked to the price of soybeans, corn or wheat to encourage the liquidation of products from the agricultural sector,” stated the economist, who warned that, “however, this would inevitably generate inflationary pressuressince the new exchange rate should be set at $500.”

Another option would be access the dollars that the provinces have deposited in commercial banks, Motyl added. However, given the electoral context, it is an alternative “hardly feasible”. And he remembered: “You still have the China swapwhich means that it is still possible intervene in the foreign exchange marketbut this intervention should be accompanied by a more solid agreement that guarantees the normal flow of purchases abroad”.

In conclusion, if the government does not want to be forced to resort to a devaluation significant, it will be essential to obtain dollars, either from the local market, from the IMF or from China. These measures become necessary to ensure economic stability and avoid sharp fluctuations in the exchange rate, at least until I STEP THEM.