This has undoubtedly generated an additional impact on the Structural demand for dollars for treasure in an economy that, due to its inflationary experiences, already used the weight as a unit for savings. The problem occurs when it seeks to eliminate these controls and return to a freer market. There is a structural demand for high treasury and there is a culture of dollarizing positions before any event that may imply some risk for the value of the currency. In other words, very marked cycles occur in which the demand for dollars is enhanced and the offer tends to run to maintain a position as dollarized as possible.
The big question is how to contain those cycles so that they do not affect economic balance. Under BCRA exchange and intervention type fixation schemes, that may imply that the monetary and exchange authority must sell currencies, disrupting reservations. That, which seems like a solution, increases to the level of uncertainty and usually generates a greater increase in currency demand. In exchange flotation schemes without intervention, the logical thing is that supply and demand movements generate a price rearrangement.
A differentiating factor in these “controls / not controls” cycles has been the level of real exchange rate balance. Cycles with exchange controls generated a real exchange rate in the official dollar lower than the average and especially lower than the average of cycles without controls. But above all they generated a inversely proportional exchange gap to the level of restrictions. On average the gap was 57%, but at times it clearly exceeded 100%.
The free dollar in those control cycles (CCL), operated with a balance point above the years without controls (+16%). In other words, the controls lower the actually artificial real exchange rate, but generate a rise in the free dollar. Analyzed these factors, we can begin to evaluate the current situation, in which many exchange controls were eliminated, but the validity of some still persists.
Especially for the corporate segment. A key point is that the dollar is working without a gap and that is a sign that there is efficient arbitration between the sectors that can access foreign exchange and those that cannot do so. Otherwise there would be a gap between both markets. Therefore, we can start from two conclusions: the economy works via arbitration as if it did not have exchange controls and therefore the real exchange rate equilibrium point should resemble more than cycles without exchange controls.
How do electoral cycles impact?
So far we have raised an assumption: that the economy works as if it had no exchange controls. Under that assumption, we propose to analyze the pressure that has been seen in recent weeks about the exchange rate to understand if there is a balance problem or is a transitory stress factor. The treasure of individuals has had marked levels of volatility in different cycles. At times he has reached record values and other cycles has remained much more stable.
If we analyze the observations of the cycles without stocks, the average treasurement has been US $ 1,100 million per month. But that figure It can be extended to almost US $ 6,000 million per month at times of greatest uncertainty. That implies levels of treasurement of the order of 12 PBI points. It is a very high figure so that it can be sustained over time.
Another important fact is that this level of treasure is not necessarily linked directly to the value of the real exchange rate. A first analysis would suggest that, At the back of the backward exchange, greater is treasurement. But the truth is that, although that factor affects, there are others that come into play, in which expectations and electoral cycles have shown a strong impact.
To identify the relationship between these factors we have analyzed the levels of treasury, classifying them according to the current real exchange rate. There it is clear that, at very high levels of TCR, the ability to acquire currencies is lower, but the sample can be affected, because these data coincide with a cycle in which the economy was completely demonized post crisis of 2001-2002. In subsequent years the relationship is not so direct.
Moreover, Monthly treasure rises when the real exchange rate passes from levels of $ 1200 to levels of $ 1,500 – $ 1,600, all expressed to today pesos.
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This can confirm that, in certain cases, the TRC rises is due to the greatest demand for treasure and not conversely. If we assume that this is so, the cycles of greater stress and dollarization of portfolios can generate deviations about the level of the real exchange rate of equilibrium.
ELECTIONS 2025: “Overshooting situation”?
July exchange market (MUC) data confirmed that the treasure level is found in record values. Au $ 5,436 million arrived in a month. Annualized are practically 10 points of GDP.
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Seeing the rest of the figures, it is clear that it is the factor that is generating the imbalance and the upward pressure on the exchange rate. The main question is whether this justifies a correction of the real exchange rate level of equilibrium or we are facing a transitory effect.
There are several questions that appear, Some can be answered and others will depend on how the political scene evolves.
The first question is If these demand levels can be sustained over time. The answer to this point is that they are not possibly not sustainable over time. They can be for two or three months, but then the ability to dollarize positions/ savings tends to diminish. There is no savings capacity. In recent years, these demand rhythms have not been held for a long time. Although it is true that sometimes they have been accompanied quickly with new controls.
The second factor involves understanding how supply to these demand cycles. While in July there was a great currency liquidation, that was explained by a tax issue. The logical thing is to expect the offer to run. An additional factor to keep in mind is that there may be a direct relationship between that currency offer and the associated demand. Especially if agricultural producers anticipated the liquidation to take advantage of the tax benefit, but did not keep the weights, but were dollarized waiting for the investment for the following campaign. Soif the demand is temporarily at record levels and the supply has run the market, we can be facing an “overshooting situation.” That is, a period where supply and demand factors have run from the levels that mark the economic foundations at a different level that can lead to a much higher exchange rate value, but that is not sustained over time or not represents the real point of equilibrium.
The third question is how economic policy (exchange, monetary and fiscal) answers to this challenge. One option is to let overshooting be generated, with the exchange rate reaching temporarily very high values, although after the factor generated by Stress (elections), it should find a new different equilibrium point.
Surely lower than “overshooting”, but not necessarily equal to that prior to this process. The other option is to try to mitigate that imbalance, to prevent an overshooting event from generating macro and microeconomic imbalances. The economic team clearly chose the second path, seeking to prevent a jump from the exchange rate, even if it is transitory, affect the disinflation process that has been carrying out.
The challenge is to find efficient tools so that the “overshooting situation” does not derive in a real overshooting. The interest rate loses efficacy to the extent that it approaches the date of the elections; The control of the amount of money helps, but has shown that it is not enough, because to the extent the offer is run it is quasi impossible to find a balance.
The last attempt is to generate that missing offer to achieve balance. It can come through future interventions (purchase in futures can help generate sales in spot) or directly for the sale of treasure and/or BCRA currencies. In the latter case, what defines is the power of fire they may have. The success of that intervention will be given by the amount of currencies that it can offer and the value to which the intervention is defined. The logical thing would be to do it above the real equilibrium price.
The problem is that That price is not known. In the current scheme, the roof of the band could be that reference, but the treasure has decided to intervene before, probably understanding that the roof of the band is well above the equilibrium value. That answer we will not have until after the elections, when we can analyze how the supply and demand factors are rearranged.
Key factors to follow
Commercial surplus: From the analysis of currency flows it is clear that the factors that depend on the foundations do not look out of balance. Beyond the seasonality of the agriculture, the first six months of the year have shown a much more stable situation between the liquidation of the exporters, the needs of the importers, the net payment of services and the entry of capital flows. We could expect something similar.
The treasure is reversed: If the Stress factor dissipates (it will depend on the expectations of investors and the electoral result) or aggravates. If it dissipates and the economy needs weights again, a cycle of reversal of that treasure could be given. If the stress is magnified, the reversal may not occur, but we do not see the current demand sustainable for many months.
Income of financial dollars: The offer is running during the Stress cycle, but then you should start returning to finance the investment projects that are pending. The capital account is key to understanding the next balance.
The role of the treasure: The treasure has been paying its debt maturities for several years. That implies a weight player that needs around US $ 15,000 million annually. That changes the balance point of the TCR. The treasure is needed to roll its debt by accessing the capital market. If that happens, the equilibrium point can be lower.
As we see, The weeks after the electoral contest will be key to understanding how the flows are accommodated and therefore what is the level of exchange rate compatible with this economic phase. Meanwhile we will remain attentive to the way in which the economic team tries to mitigate this imbalance between supply and demand factors.
Megaqm chief economist.
Source: Ambito
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