It is logical in an economy that still does not have sufficient credit development so that inflation objectives can be raised and used to be tool. But, while Phase III matures, We must live with this new market reality and adapt our decisions to that context.
When a modification is implemented in the monetary and exchange scheme, and especially when that movement is expected by the market, there is a particular distortion. Those who have to demand currencies anticipate those movements and those who have to settle postpone it. Once the new rule is known, those cycles are reversed, the one that retained have to sell and the one that anticipated, no longer has to pay. That makes the first wheels not significant of the real market of the new market.
These balances begin to see when at least 3 or 4 weeks of operation are elapsed. 15 operatory wheels are already going and you begin to see what The market is working within a kind of intermediate sub-band. For now away from the floor and roof established by the BCRA. This intermediate band, measures such as the maximum and minimum intradiaries that have been given, is $ 1,070 to $ 1,210. The differential between floor and roof is 13%, when formal bands is 42%.
It is clear that at a certain level close to the sub-Banda floor, a greater demand flow appears and part of the supply is removed and the reverse seems to happen when it approaches the roof of the sub-band.
Monitoring exchange flotation
Anyway, earlier this week the TCN seemed to look for its balance at levels close to the roof of the sub-bands and there appeared a new signal. A volume appeared Strong offer in futures Rofex exchange rate. This market is an important mechanism to arbitrate the seasonality of the exchange rate, since you can operate buy spot at the time of greatest offer and selling future at the time of lower supply or vice versa.
The offer in the middle and long sections of the future market allowed a greater volume of operations and generated sales in the spot, which brought the TCN again to the floor of the sub-band. For now without breaking that threshold.
How is the future dollar operating?
Currently, futures contracts were operating until the end of the year with an implicit dynamic that moves in line with the expected adjustment of the band’s roof. That makes In the shortest stretch, it operates almost 6% below the midpoint of the band, that as of September, it operates in line with that point of Medo and that as of December it operates 3.2% above that point.
All these values generate implicit interest rates on average of 22%, but which start at 26% for the shortest stretch and that fall to 20% for the longest section.
In short, the market has bought the new band scheme and operates in line with the midpoint of these bands, although with a bias to get closer to the roof to the extent that the temporal horizon extends.
In this scenario, what looks unlikely is that the BCRA to buy reservations on the band. But probably the reservations accumulation strategy comes on the other hand, perhaps more associated with debt issuance operations.
What does it imply for interest rates?
In this more content changing scenario, future inflation expectations have lowered strong. Today the market operates with a Implicit inflation rate (Breakeven CER – Fixed rate) of the order of 27%/28%.
These values are 15 percentage points lower than those in force in early April.
EXTERNAL INFLATION EXPECTATION
The decrease in the nominality was directly moved to the fixed rate instruments in pesos, which once again operate with a negative slope. Possibly the Treasury is raising the goal of continuing to lower interest rates and especially to start probe alternatives to extend the deadline of new emissions and clear the maturity profile of the coming months.
Current real rates (Cer Curve) begin to look at something highbecause they are arbitrated with a Hard Dollar curve that still has the cost of not having managed to recover access to markets.
Even the Lecaps curve, given the expected inflation scenario, can be throwing high values in real terms. That is why we understand that part of the futures operation of recent days, lowering exchange rate expectations, may be aimed at significantly lowering interest rates in pesos.
The agenda of the coming weeks
While the agro settlement progresses, The focus is possibly to lower interest rates, even at the risk of having some volatility in the third quarter. But it is necessary to lower the real cost and the cost in dollars to the treasure, which is the main payer of the fees in pesos (above the financial system).
We do not rule out that they are looking for alternatives so that the treasure can be financed cheaper and that within these options you can start reacting to the capital market. Possibly that would be a “trigger” to significantly change long -term expectations and help consolidate the economic program.
Undoubtedly today the main obstacle is to generate the currencies that the treasure needs to fulfill its obligations in foreign currency. An objective that no economic program can sustain over time. If the role of debt maturities in foreign currency, the equilibrium point for the exchange market and for the accumulation of reserves would be much easier to achieve.
Meanwhile The focus seems to be put to monetize the economy adding to the circulation to savings in dollars In cash, to help increase the degree of intermediation and give the banks already the companies to continue growing. It is a way to prevent potential increases in interest rates in dollars that can press on active rates and, via coverage cost, press on pesos rates.
There are many objectives, in a limited period of time, but the different signals make us think that we will try to advance in the direction of aligning exchange expectations, lower inflation and generate lower interest rates, to feed back the process and lower the cost of anchoring to companies and the treasure.
Megaqm chief economist
Source: Ambito
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