Luis Caputo decreed the end of negative real rates: will the “carry trade” return?

Luis Caputo decreed the end of negative real rates: will the “carry trade” return?
Luis Caputo decreed the end of negative real rates: will the “carry trade” return?

With the inflation of May below 5% and given the statements of the Minister of Economy, Luis Caputowho in his dissertation in EFI Expo assured that “the era of the negative real rate is over”the question arises about the return of the “carry trade”, how valid it was in the first part of the year against a flattened dollar.

Luis Caputowhen he spoke this Wednesday, had said that the lowering of rateswhich was part of the liquefaction strategy to reduce the remunerated liabilities of the Central Bank, was coming to an end. This was after the Treasury Bills tender that the Palacio de Hacienda held on the same day and in which a minimum rate of 4.25% for 90 dayswhich worked as a signal for the market.

In the event that they are validated positive real rates (something that still raises doubts), it is plausible to wonder about the return of the “carry trade.” To respond to this slogan, Ámbito collected opinions from specialists. Among them that of Elena Alonsocofounder and CEO at Emerald Capital: “I don’t think it will happen in the short term. “If it can happen that the rates are positive because I don’t think they will continue to fall as they have been doing and I don’t think there is much room for the ‘carry trade’.”

“I see the expectation of interest rates falling, but not with the fury with which it came before. I think that inflation is going to fall more than the rate, so that is where the spread remains.”. I don’t know if the margin with the dollar is going to be very interesting. For me, what all this points to is to promote the issue of the real economy and that the opportunity cost of investing is to reactivate activity,” she added. The expert clarified that she believes that The dollar could fall to levels of $1,150 and the rate is expected not to drop below 35%.

Bases Law, inflation and rates: what reading does the market make

The analyst Mariela Brandolin, together with Fynx Global, said that the low inflation that was reported (the CPI for May was 4.2%) just when the market was celebrating the Bases law“not only is it a good sign for the economy but it also creates a favorable scenario for the ‘carry trade’.”

“In addition to inflation that seems to have stabilized, There is also talk (even from the Government) of the possibility that the interest rate exceeds inflation” Brandolini expanded, but added: “A fundamental factor for this strategy is the dollar, which in recent months, despite having suffered some outbursts, seems to have found some stability and that is key, although of course nothing guarantees that it will not suffer new volatilities in the future.”

In short, although there are some favorable conditions, “The ‘carry trade’ is a possibility, although it does not seem like it would happen immediately”the expert closed.

The signals that Caputo wants to send

The Economist José Ignacio Bano He told this media that he believes that the Minister of Economy wants to send a signal. “They need people to believe that rates in pesos are going to be positive and to think about not going to the dollar”he explained.

Until now there were negative rates but the dollar beat inflation, the economist said and expanded: “What has been happening is that people stayed in inflation-linked assets and that’s how you beat the greenback; was betting on the CER bonds. “Now all the numbers are tight, which could eventually make the dollar shoot up.”

However, he said that although “It is a possible scenario, it is in no one’s best interest for it to be triggered” the foreign division. “So it does seem to me to be a good move by the Minister of Economy, who understands the market very well, send signals that we must stay in pesos and not switch to the dollar. In fact, the Government has been having a hard time getting dollars and the alternatives to do so are not good,” he clarified.

In this regard, Bano mentioned two: raise rates in pesos or devalue, so he believes that “everything they can stretch this situation they will do.” “If the rate increases, it plays against activity, especially now that credits that try to reactivate the economy have begun to appear,” but he clarified that the other option is more harmful, which is to devalue. “If you stood firm with the ‘crawling peg’ at 2% and you devalued, the market sees you as weak”hill.

Source: Ambito

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