The midterm elections passed and, by the end of the year, the central bank face the challenge to attack imbalances accumulated at the exchange rate.
A high deficit disc that will demand the growth of money in circulation, the inflationary inertia about 3% per month and 50% per year, together with certain tightness of dollars in reserves, renew the pressures on the exchange rate.
At the same time, the validity of a strict capital control and expected income from wheat harvest They still provide some space to the Central to avoid a sudden devaluation, although this margin runs through an increasingly narrow cable car with the passage of time.
In the next few months there are four variables to follow closely as to anticipate what will happen to the dollar:
1) Limits for exchange arrears. In the framework of the electoral campaign, the BCRA took advantage of the strict stocks to stop the devaluation as much as possible. The Multilateral Real Exchange Rate Index (ITCRM), through which the entity measures the competitiveness of the economy according to the exchange rate variable, it reached a floor of 104 points, a minimum since June 7, 2018, when the run on the dollar broke out during the presidency of Mauricio Macri, when it was necessary to appeal to an agreement with the Monetary Fund International.
It is not the philosophy of Frente de Todos to seek an equilibrium price for the dollar, therefore, a violent devaluation will not be in the plans until December 2023, but a update of the wholesale dollar at a rate closer to that of inflation, over 3% per month, is a likely scenario in this second half of Alberto Fernández’s term.
2) Few reserves. International assets in the coffers of the Central Bank reach 42,000 million dollars.
But this holding is almost extinguished by discounting concepts such as the “swap” or exchange of currencies with the People’s Bank of China (almost half of them reserves), the Special Drawing Rights of the IMF (about USD 2,500 million that should be used for the repayment to the body itself), gold (USD 3.7 billion: selling it would be a red flag in the market), private deposits and other loans.
Today the BCRA has just over USD 800 million in liquidity to intervene in the wholesale market and keep devaluation at bay. They are very scarce currencies if one takes into account that the Central accumulates a negative net balance of USD 776 million so far in November due to its intervention in the wholesale market, to meet a firm demand, particularly from importers.
3) Bet on wheat. The best winning card The one the Central Bank has is granted again by agriculture. In the months of December and January, foreign exchange earnings from wheat exports are a firm prop for the Central’s reserves. Cereal rises 2% this Monday, to USD 312 per tonne, its highest price in nine years, since November 2012. Private calculations estimate a range of USD 3.8 billion to USD 4 billion the contribution of wheat to the trade balance, almost a 10% of reservations gross figures from the BCRA, which would help alleviate the shortage of foreign exchange in the short term.
Fewer reserves and more pesos in the street reaffirm the trend of an exchange rate gap above 100 percent
4) Fiscal deficit and “bomb” of pesos. The main inflationary driver is the monetary expansion, that is, the pesos issued by the BCRA to cover the imbalance in public accounts. Collateral of this constant injection of coins is the endogenous issuance of the entity to pay maturities of the debt it issues to absorb said excess liquidity (Leliq Liquidity Bills and Passive Passes).
The “rain” of pesos will be abundant towards the end of the year. The Monetary Base grew 38% in the last year (from $ 2.3 trillion to $ 3.2 trillion) and the monetary circulation (main component of the Monetary Base) rose 36.2%, a trend that justifies the year-on-year advance of 24% for the free dollar (from $ 163 to $ 201.50) and 43.8% for the stock market “counted with settlement” (from $ 148.75 to $ 214.85).
Less foreign currency reserves and more pesos on the street reaffirm the trend of exchange rate gap, above 100 percent between the official dollar and the alternative and free quotes.
Due to the slow devaluation, in 2021 the loss of exchange rate competitiveness is 20 percentage points
In this sense, a red light for financial and stock market agents is the exponential growth of the stock of Leliq and Pases, 74% in the last year, from $ 2.55 trillion to $ 4.43 trillion, a rate much higher than that of devaluation and inflation, and clearly a bad sign regarding future liquidity, given that this debt is of very short term and the BCRA must renew it permanently.
Today there is a 38.4% more pesos embedded in these debt securities, which require the monthly payment of interest above $ 100,000 million per month, that in the Monetary Base, which is the money with which the economy works.