Dollar: City gurus insist on the need for a government reaction

The main characteristics of what was announced by the Government are: the transfer of remunerated liabilities from the BCRA to the Treasury, that is, that banks will now have Treasury risk instead of BCRA riska lake that leaves many doubts.

The confirmation that There will be no changes in the exchange rate scheme —that is, the “crawling peg” at 2% monthly, the dollar “blend” to settle exports and There is no date for the opening of the cepo. Therefore, the negative market reaction and the rise in the gap that demands a new jump for the official exchange rate.

Dollar: what the market is asking for

As the financial analyst explains, Christian Butelera Ambitthe market has doubts about how the program will continue and, above all, what the answer will be to the questions that are pressuring the economy these days.

Buteler indicates that already with seven months of management with a clamp, not on the official dollar, but on the financial dollars“those dollars that affect the Central Bank’s reserves because they are bought and sold privately” and despite the fact that June, a month that seasonally allows the BCRA to incorporate reserves, it “could not do so.”

A dollar that is beginning to be perceived as lagging, an economy that two months ago was said to have a V-shaped rebound, but the indicators continue to show that it is in decline.is added to the press conference on Friday where the Government says that everything remains the same, Buteler analyzes. So, if these doubts that the market has are produced under these conditions and you say that you do not modify them, “The truth is that it doesn’t help much”.

For the strategist, what the market sees and what he would like to know is how those variables are going to change: What are the drivers that will cause the economy to rebound? How can reserves be recovered in a second half of the year, which is generally more stressful in this regard due to seasonal issues? When will that come out of the trap? “They know that With a clamp you do not grow, with a clamp the reserves do not become stronger and you need to grow to start to recover some activity,” he says.

And the news about the exchange rate restrictions was the “no announcement”. What was said is that the removal of restrictions will be in “phase 3”, although it was not communicated when this new stage will begin. From the Center for Political and Economic Studies (CEPEC) say that the Government has been doing a good job of eliminating excess pesos from the economy, “But on the other hand, he cannot get dollars.On the contrary, in June, a month of good seasonality, the Central Bank (BCRA) ended as a net seller, a situation that moves away the horizon of lifting the restrictions: Without dollars, there will be a currency control”.

And Bausili himself revealed that June ended with a negative balance in reserves and warned that it is “probable” that the third quarter will close with a deficit of around US$3 billion. All this, facing a July in which we will have to face payments of US$2.6 billion for sovereign bonds and the amortization of the BOPREAL will begin. The situation is therefore becoming increasingly worrying.

And what is the market asking for? Currency definitions. Milei’s government showed strength in its first seven months of management and proved that the fiscal deficit, not just the primary one, could be eliminated almost overnight. And although there are more than reasonable doubts about the sustainability of the fiscal result, “The Executive’s commitment to this result is very clear.“, they say from the consultancy 1816.

“But even assuming that The fiscal issue is the mother of all the problems of the Argentine macroeconomic situation, it is evident that it is not the only one that the economy faces.”, warns the consultant. And in general, there is agreement in the market that (Mauricio) Macri’s economic management failed because, having opted for a shock in the monetary/exchange rate, it was gradualist in the fiscal area.

Now, the opposite is happening, Milei, showing a totally opposite recipe (fiscal shock, gradualism in monetary/exchange), “had the approval of the market in its first semester, But today the message that investors seem to be giving is that “it is not enough to resolve only the restrictions (like Macri) or resolve only the fiscal (like Milei), for the economy to work both things must be resolved, yes or yes, and quickly.”“, adds the latest report from the consultancy firm.

Uncertainty lurks

Also a report of Labour Capital & Growth (LCG) warns the Government about the rise of the dollar. “What Luis Caputo announced differs from what President Javier Milei says, who continues to maintain that removing the Central Bank from the scene is still the goal. The Minister again stated that more dollars are needed to get out of the currency trap, while Milei says that it is enough to stop issuing, finishing ‘cleaning up’ the BCRA’s balance sheet“, the document warns.

“Therefore, on the monetary front, uncertainty continues,” they say. They add that, “Once again, officials showed the most pragmatic side of economic policy definitions, but this time leaving a more bland taste“.

“The doubt that this announcement (Friday’s) raises is that it is once again dissonant with respect to President Milei’s more bombastic comments. How does this fit in with the so-called currency competition? Is it really pointing to the elimination of the Central Bank in the future?“, they questioned.

Thus, after the bad June, the market’s eyes are on the evolution of the exchange market, where the BCRA is expected to continue its selling streak. It will also be important to see if there is any reaction from the Government, which remains sterile to the situation with the president fighting internationally and trying to dominate the world like Napoleon, and waiting for everything to settle down and assets to recover a few percentage points to act as if nothing had happened, but the gap is still there.