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Dollar: what will happen to the crawling peg, the Government’s response to the market

Dollar: what will happen to the crawling peg, the Government’s response to the market

In recent days, different economists have raised the need to modify the official 2% monthly devaluation scheme (crawling) to prevent the real exchange rate from losing competitiveness, given the strong advance of inflation. However, a high source from the Casa Rosada pointed out Ambit that at the official level evaluate that the official dollar is at a reasonable level and that, in any case, the financial ones were at extremely high values.

One of those who addressed the topic recently was Sunday Cavallo, on his blog. After pointing out that “the inflation rate in February was closer to 10% monthly than the 15% indicated by many consulting firms”the former minister affirms that “the fall in the inflation rate offers the opportunity to increase the pace of the crawl and thus eliminate the risk of a devaluation jump in the coming months.”

In this regard, it calculates that “the real exchange rate is already at levels close to the average for the 2018-2023 period. This means that the real exchange rate relevant to exports, which is lower than that of imports due to the country tax, “It is dangerously close to the levels from which it should have been devalued in the past”.

However, for the Palacio de Hacienda the exchange rate is not misaligned. A high official source commented to this medium that the real exchange rate for the period 2018-2023 (to which Cavallo refers) is very high for the Argentine economy in a context of zero deficit and without financing from the Central Bank to the Treasury.

After estimating that the price index would be 17% in March and 13% in April, the economist Martin Rapetti considers that “the inflationary dynamics that we are projecting would clash with the exchange rate strategy of adjusting the official exchange rate to 2% monthly, because “It would end up liquefying by the end of April almost all of the exchange advantage achieved with the 120% rise in the dollar in December.”.

Evaluate that, if the scheme is maintained, At the beginning of May, the real value of the official exchange rate would be between 20% and 30% below what can be considered the equilibrium levelwhich is why he believes that the pace of devaluation should be accelerated.

All in all, in the opinion of the director of Equilibra, the Government has incentives to maintain the current pace of devaluation until the end of April, when US$7.64 billion of dual bonds and dollar-linked bonds mature.

The Government’s priority

It should be taken into account that, for economical driving, The priority is to lower inflation -and in this way prevent the social situation from worsening-. Obviously, an acceleration of the devaluation would make it difficult to slow down the price indices.

The latest measurements seem to confirm Minister Caputo’s prediction that the February index will be closer to 10% than 15%, but it is difficult to reach one digit in Marchaccording to analysts, given the expected increases in rates, education and other items.

From where – and if there are no exceptional situations – The decision of the economic team seems aimed at maintaining the current exchange rate scheme for the moment. In any case, the authorities have at hand the possibility of lower withholdings.

For now, The implicit devaluation rates in future dollar contracts have begun to incorporate a crawl of 2% immediately.

Source: Ambito

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