Devaluation in installments and a BCRA that will have to buy more dollars

The exchange result for August showed that the BCRA, despite the strong recovery of the last 15 exchange rounds, lost some 520 million dollars last month. The data that should concern the economic team is that the total of international reserves accumulated in the BCRA today reaches some 36,700 million dollars and they are about 4,000 million dollars below 45 days agodespite the fact that restrictions on imports have increased and the price of imported gas has dropped in recent days.

The biggest question is knowing what will happen in September, a month where it is expected that the oil industrial export sector will liquidate an amount amount of dollars in case the government accepts the sector’s proposal to buy those dollars at a value close to 200 pesos compared to the 140 pesos that it costs in the official free exchange market (MULC). In the last 15 days, the average purchase level reached 20 million dollars per day.

Will it be possible to maintain this level of purchases in the BCRA? What is the reason for this change in the BCRA’s performance? On the one hand, Agro accelerated its liquidation from US$140 million per day to US$155 million in line with what was expected by the ruling party. In addition, between now and October, the ceraleras could anticipate an additional 5,000 million dollars, so the increase in liquidation would be due to a commitment assumed by the field in the event of achieving a reinforced soybean dollar of about 200 pesos.

While, on the side of the so-called “‘Other demand for dollars”, it plummeted from a daily red of US$240 million to US$135 million. A recent report by the consulting firm Portfolio Personal explains that this cut could be explained by i) energy import payments that would have halved in August (from US$2.4 billion in July to US$1.2 billion); and ii) the tightening restrictions on imports.

What is new is that the exchange market in August had a before and after the first fortnight. In July there was a negative balance of more than 1,200 million dollars for the BCRA and Net Reserves at just US$2,000 million.

Reduced BCRA reserves: will there be greater restrictions?

The negative aspect for the BCRA is that September began with a very low stock of net reserves of barely 1,000 million dollars, and with a real exchange rate that is at its lowest since the first discreet jump of the government of Mauricio Macri, which was on April 2018.

The BCRA began September with a very low stock of net reserves

The government is likely to try to fight back with further quantitative restrictions and differential exchange rates (the announcement of an “agro” dollar that is more attractive than the “soybean” dollar would be imminent), although it will only serve to delay the inevitable outcome. At the end of the road a formal split or a devaluation has all the chips in place.

In this sense, it should be noted that several financial analysts pointed out that there was no room for the BCRA to have a similar performance in the MULC in August. In particular because considering the payments to the IMF at the beginning of the month, net reserves would have flirted with negative terrain. BCRA sales in the first fortnight reached 800 million dollars as a result of high energy imports.

The positive for the Central was that history was reversed in the second fortnightwith energy payments much lower than expected and due to a high average temperature for the time, and apparent strong restrictions on imports since the rest of the MULC went from about 1,770 to 1,150 million dollars. In this way, the BCRA cut the negative balance of the first fortnight to some 500 million dollars.

For the financial market, the relevant question is how the film continues from now on. From a “sectoral” approach of the MULC, the seasonal fall of agriculture would be felt more than that of energy (which seems to have advanced its fall), with an estimated balance that would be reduced from US$2,629 million to US$2,143 millions. However, the biggest challenge will be how it will face the rest of the demand, which is explained mainly by imports.

The “step on” imports is not innocuous neither for the level of economic activity nor for the level of prices. “The economy has already shown signs of exhaustion, with private surveys showing monthly falls of 0.9% in Industry and 0.3% in general economic activity,” they explain from Portfolio Personal.

In terms of prices, and considering that inflation in August will be at a monthly value close to 7%, what is beginning to cause concern is the transmission of the value of financial dollars, which is beginning to have an impact on some prices of goods because a large Many importers make their purchases abroad using the CCL dollar, since they cannot buy those dollars in the single official exchange market and transfer that value from the exchange rate to prices. It is what some analysts call a “devaluation in installments.” To explain it from a monetary point of view, it is that for the same amount of pesos there are fewer goods to buy which implies less imports and as a consequence a greater excess of pesos in the financial market.

The foreign exchange market lives on a knife edge permanently,

Exchange rate gap greater than 100%: what will happen to exporters

With an official dollar around $140 and the parallel dollar around $285, this implies a gap of more than 100%. This invites you to exporters retain merchandise, and that importers rush to import, in order to have merchandise at a good price. Importers can only import in 2022, 70% more than imported in 2020 or 5% more than imported in 2021, whichever is less. This implies that imports are not called to grow, the level of activity and investment will not be able to increase in this context. If we add to this that exports will be delayed, the country will hardly be able to grow.

The foreign exchange market lives on a knife edge permanently, which makes investment and price decisions in the economy difficult. In this sense, according to a recent report by Analytica, more and more prices abandon the official dollar and begin to follow the evolution of financial dollars. We estimate that more than 40% of companies and businesses look more to the CCL or the MEP than to “dollar 3,500” when making price decisions. This is one of the most serious aspects of a gap that exceeds 100%: beyond the classic fiscal and monetary adjustment, inflationary dynamics become more complex to disarm if devaluation expectations fail to tame.

The positive data for August in the financial aspect is that, although the definitive numbers are not yet known, the BCRA reduced its future sales positions. In July, to the surprise of the market, the BCRA’s short position closed at some 7,000 million dollars, falling below analysts’ estimates that placed it close to 8,000 million dollars. In June, before the resignation of Martín Guzmán, the position of dollars sold in the future of the BCRA reached 4,300 million dollars.

In July, however, a new maximum was registered so far in the Alberto Fernández government, surpassing the peaks of US$5,683 million in October 2020, where the gap had shot up to 130% and US$5,151 million in November 2021 (legislative elections). To find a figure that exceeds this amount, you have to go back to February 2016, when it had reached US $ 10,982 million.

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