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In the previous election, the Central Bank accelerates the sale of dollars to smooth the rise in the gap

Photo REUTERS / Agustin Marcarian

The Central Bank has been accelerating in recent days its intervention in the stock market to try to put a brake on the free dollar’s surge. Although no official information is provided, the movement with dollarized bonds reveals more demand from investors seeking to dollarize, but also sales by the entity to put a ceiling on the MEP dollar and the “cash settlement.”

The obstacles that the BCRA itself imposed on imports allowed it to accumulate more than USD 500 million in reserves throughout October. In this way, the entity gained some firepower to prevent the exchange rate from continuing to skyrocket in the run-up to the elections. It has been obtaining its objective by half: The free or informal dollar hit new highs yesterday, reaching $ 197, which suggests two things: that the intervention of the BCRA is insufficient to completely placate the market, but also that the pressure from investors to dollarize has been growing steadily firm.

None of this is strange with so little to go before the legislative elections. Already in the previous one to the STEP, a similar movement took place, which forced the Central to accelerate the sale of foreign currency, but without achieving the expected results. The consequence was a greater tightening of the stocks, both for importers and for those seeking to dollarize via the bond market.

As always happens in pre-electoral times, dollarization pressure is increasing significantly. The Central Bank also increased its intervention through the stock market, but volumes are insufficient to dominate prices

The BCRA cannot intervene in the free dollar price, but it does so indirectly through the MEP dollar and the “cash with settlement”. It is assumed that by ironing these quotes, investors would have less incentive to buy more expensive currencies in the informal market. Nevertheless, These “stock market dollars” have also been rising at an accelerated rate and accumulated an increase of 4% only in October, which is why the BCRA’s shares in this market have been insufficient to dominate the price.

The economist’s estimate Gabriel Rubinstein, director of the consulting firm GRA, is that the BCRA’s sales in the bond market have been increasing markedly to avoid a surge in the exchange rate: “Last week the average sales were around USD 15 to 20 million. In recent days we are talking about a volume closer to USD 25 million per day ”.

An indirect way of measuring this increased exchange rate intervention is through the bond market. The AL30 in dollars, which is the title chosen by investors to go from pesos to dollars, also multiplied its volume traded in immediate cash and 48 hours, to about USD 30 million per day. This figure doubles and even triples what had been operating in previous weeks. The BCRA’s intervention scheme is more than known: it sells dollarized bonds that it received in the debt restructuring last year, but later bought them back using reserves.

These interventions are subtracting from the Central Bank liquid reserves that it could need after the November 14 elections. It happens that in addition to these sales, it must also face the IMF maturities in both November and December, which total almost USD 2.5 billion.

The big question is How will the head of the Central, Miguel Pesce, continue to intervene in the exchange market when he has very little liquidity in dollars. For this reason, the situation is becoming more and more tense and the bets are growing on a devaluation jump of the official exchange rate to try to honest the exchange situation.

Both Pesce and the Minister of Economy, Martin Guzman, have been ruling out a sharp devaluation. But it will be almost impossible for the exchange rate not to move much faster than it has been doing so far. Since March, the official dollar has risen 1% per month, while inflation averages 3% per month. Not only is the official exchange rate lagging behind, but also the exchange gap has returned to levels of practically 100%, which generates more expectations of devaluation.

Rubinstein’s consultancy calculations indicate that today the SDRs and gold held by the Central are above the entity’s liquid reserves. Therefore, the BCRA would already be using dollars from some of these sources, or even from reserve requirements in dollars from public deposits.


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