The market and the Government continue with their pressed on a devaluation, which is reflected in the value of the future dollar and the implicit rates of increase in the exchange rate in the coming months, while the Minister of the Economy, Sergio Massa, insists on giving signals against an exchange jump by widening the stocks.
For the market, what needs to be looked at is “the underlying fragility of the macroeconomic scheme, and this is reflected in expectations of devaluation in the future dollar market which continue to be too high,” said Santiago Manoukian, from the consulting firm Ecolatina.
“The Implicit rates in Rofex (one of these thermometers) of the September and October contracts are close to 160% and 180% effective annual vs. the 155% TEA (annual effective rate) at the beginning of the month or the 120% TEA at the beginning of July, he explained.
The TEA is the number against which to compare inflation.
What clamp apply the BCRA and Economy to the exchange rate
“The participation of the Central Bank in the futures market to reach almost the limits allowed by the agreement with the IMF, anticipates that there is a generalized expectation of the exchange rate”, said Martín Kalos, from the consulting firm Epyca.
“However, this does not mean that devaluation will occur with a significant jump in the value of the dollar,” he warned.
“The government is showing that it has tools to raise the levels of exchange control, and if it closes some currency flows that take reserves from the Central Bank, it will be showing that it does not intend to devalue“, he assured, although he acknowledged that “it is not desirable”.
In fact, Massa is preparing measures to tighten the trap on imports in the next 72 hours, with an eye on software companies and automatic licenses for mice and keyboards, or bovine semen, according to official sources..
Will the measures be able to calm devaluation expectations?
The market continues to price some devaluation, estimated at 40% in December, that is, around 9% per monthsaid Pedro Cristiá, partner of First Capital.
“It is not surprising that the Implicit rates on Rofex have increased 20% in the last month. Hedging demand pushed rates above 100% even in the very short term. The expectation of devaluation of the peso will be difficult to calm with this level of international reserves“, said Guido Lorenzo, chief economist of LCG.
For Cristiá, the value of the future dollar and, therefore, the expectations of devaluation will be determined by the following macro parameters:
- How are you going to treat the tax front. More issuance leads to a higher spot with liquidation and also higher expectations of devaluation of the officer
- Related to the above and to monetary financing, the inflation continues to run above the devaluation of the official exchange rate monthly, leading to a greater delay, and greater expectations of devaluation.
- Although the BCRA accumulates 9 rounds of positive interventions in the MULC, rates rose sharply and the Government began to signal greater fiscal austerity in the second half of the year, the level of net reserves remains at critical levelsManoukian added
The lack of BCRA reserves continues to threaten the exchange rate
“The lower demand for liquidity causes an increase in remunerated liabilities that already exceed 11 points of GDP. This growing dynamics of remunerated liabilities occurred even in a month where a third of what was issued was absorbed by the sale of foreign currency by the BCRALawrence remarked.
“So, the balance of the BCRA continues to deterioratewhich increasingly accumulates its remunerated liability while its asset reserves fall,” he considered.
The net reserves that the Central Bank has today are US$800 million
“So far in August, US$1,221 million were lost, positioning net reserves at just US$800 milliona value that is not even enough to cover a week of imports,” he said.
“A reflection of this deterioration is precisely the value of the peso against the dollar, where currently cash with liquidation is close to the ratio between monetary liabilities and gross reserves (305),” he warned.
“It is not surprising then that the implicit rates in Rofex have increased 20% in the last month, while the expectation of devaluation of the peso will be difficult to calm with this level of international reserves.“, he assured.
The future dollar position of the BCRA and the agreement with the Fund
Claudio Caprarulo, from the Analytica consultancy, said that “the position of the BCRA in the dollar futures market is very high“.
“The position of the Central in futures reached approximately in July to u$s7,000 million dollarswhile June had closed at US$4.4 billion,” he said.
In this regard, the maximum positioning of the Central Bank in the futures market to calm devaluation expectations allowed by the agreement with the IMF is US $ 9,000 million.
The adjustment with the IMF only allows Massa to reach US$9 billion in the future at the BCRA
For Caprarulo”,the jump in the position of the BCRA in the dollar futures market was expected, considering that it had to go out to lower devaluation expectations while the exchange rate gap reached 155%“.
To the coordinates of the domestic market, “the effect of the appreciation of the dollar at the international level is added during the month of August, only partially offset by an appreciation of the Brazilian real against the US currency”, concluded Lorenzo.