After falling $44 since the end of January, when the principle agreement with the International Monetary Fund was announced, and boosted by the high nominal rates in pesos that invited the carry trade investors, the cash with liquidation (CCL) woke up. The free dollar rose $13 (6.9%) between last Monday and Thursday, erasing more than a month of interest from those who had disarmed positions in dollars to make “rates in pesos.”
As always with this strategy, timing is everything. Some time ago we insisted that we had to be cautious with this investment. Since Alberto Fernández took office, the CCL has moved almost on a par with the broad monetary base (WB + Central Bank liabilities), with the exception of what happened in October 2020 and in the current period. According to this metric, the evolution of the number of pesos is still “ahead” of the CCL, so there could still be a run.
The Central Bank continues without harvesting in the foreign exchange market
The Central Bank does not have a foothold in the foreign exchange market, despite high international prices and a liquidation of foreign exchange that grows due to seasonal factors. In the 74 wheels of the current 2022, the monetary authority accumulates a meager balance of US$133 million, versus one of US$3,501 million in the same period of 2021. The accumulated figure for April is not far from these figures: a positive balance of just US$167 million , which compares with a monthly balance of US$1,373 million in 2021 and an average of US$1,139 million in stock years. Behind this phenomenon, a strong private demand for dollars can be glimpsed, which compensates for the historical record liquidation of agriculture. This excess of private demand (excess supply of pesos to this official dollar) is the consequence of a multilateral real exchange rate that falls 19% from the peaks of the Fernández administration (in December 2020).
The market, puzzled by the pace of the crawl peg
In the last five rounds between Wednesday 13 and Thursday 21 April, the Central Bank moved the official exchange rate at a rate that ranged between 40% and 58% of TNA. This deviation came as a confusing message to the market, which is unable to determine whether the monetary authority will restore the positive differential of the rate in pesos over the crawling peg. It is worth remembering that a negative spread like the one observed between these variables in recent days (-5.9 percentage points) could contribute to hindering a foreign exchange market that already looks tight without this seasoning. With rates in pesos below the official devaluation, importers prefer to leverage in local currency and advance their purchases abroad, while exporters postpone the settlement of grains as they accrue a higher implicit rate.
The rise in rates… that stopped halfway
After the publication of the highest monthly inflation rate in 20 years (6.7% in March), the Central Bank decided to raise the interest rate again. As with the previous three currency adjustments, it left the market feeling too little, too late. Leliq’s 250 basis point rise, which resulted in a 200 basis point rise in Badlar, marked another wasted chance for the monetary authority to shock the market with a higher rise. In this way, interest rates in pesos for depositors continue to be negative in real terms (-4.9% for retail time deposits and -6.9% for wholesale or Badlar), as they have been since last November. And they are far from generating an appetite to hold positions in pesos (beyond the occasional carry trade opportunity for risky investors).
Bonds take note that the light agreement with the IMF is complicated
In a macroeconomy conceived as very fragile, the market begins to incorporate in prices a breach of the goals established in the agreement with the IMF earlier than expected. The fiscal goal of 0.32% primary deficit for the first quarter was met by an accounting device (otherwise it would have been 0.43% of GDP) and the reserve accumulation goal was completed by the initial disbursement of the new program with the agency. For the second quarter, the outlook is not very encouraging: the Government has committed itself to additional social spending (bonds) for 0.3% of GDP without a clear source of financing, and the reserve accumulation goal will require purchases in the MULC for $2.4 billion. The bonds took note and this was evidenced in the strong fall of 1.5%, which materialized last Thursday.