Monday , January 25 2021

Freeze exchange groups by the end of the year: will it reach the pre-election dollar?

All eyes will be on the reaction of the dollar today, following a decision by the Central Bank to freeze the increase in stock exchanges, which supposedly had to slip with a rate of 1.75% per month by the end of June. With the move agreed with the IMF, he is trying to send a signal to investors: the government will try to limit instability of the exchange rate and, above all, avoid too much to fly to the election.

This is the first notable change in the system of adaptive exchange groups that were presented in society in October last year. But the most important thing is that It shows a degree of flexibility from the IMF, who listened to the growing criticism the scheme received and accepted the first modification. But it seems clear that there may be others if the evolution of the dollar is not as expected.

From now until the end of the year l"the zone without intervention" will move in the floor of $ 39.75 and the ceiling of $ 51.45. Despite this freezing, the same as the currency will be quite upwards in case of higher exchange rate pressure. From the end of yesterday, however, it could increase by 21.3% until the Central Bank can sell reserves.

The undeclared target for determining the exchange tape is pressured the return of the dollar to the floor of the non-intervention zone. Neither the high interest rate, nor the sale of $ 60 million a day from the Treasury and the settlement of dollars on the ground have so far failed to achieve that goal. Now the Central has decided to give another "carrot" to investors: if the exchange rate needs to be broken, the lower limit of the band will not go out to buy, at least until June 30, so it can fall further.

This "non-intervention" signal impliesn the practice that actually disappears on the floor of the exchange band. The prospect of a dollar that could fall without someone supporting it could be a magnet for the field to sell before the fall is higher.

So tandem Nicolás Dujovne-Guido Sanderlis It tries to make the dollar act as an anti-inflation anchor, as historically happened in Argentina. In March, when the currency rose by more than 11%, inflation jumped by 4.7% (the "peak" was advanced and Mauricio Macri).

Instead of, if the dollar falls below $ 40, it will also help a lot of the disinflation required after May. If one of the problems dragging the Argentine economy is inflationary "inertia", then it's logical to put an end to the indexing of bands.

And what about the roof of the non-intervention zone? When frozen, the signal of the Headquarters is that it will be ready to sell all the necessary dollars to defend a certain parity of the exchange rate, barely over $ 51. This scenario implies an increase of more than 20%, in any case, a strong overflow of the currency in the middle of the pre-election phase. At this level, BCRA can leave with all artillery – it's selling supplies – so the exchange rate does not exceed that maximum, but it can be too late by then.

One of the relevant monitoring options is what will happen with contracts for future contracts. By the end of the year, the currency traded at almost $ 60. Will they put the new ceiling on the stock market? It seems difficult, but it is not likely that they will loosen against the current levels. It will be a measure of the real credibility that Central Announcements generated among investors.

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