It seems incredible, but it is true: the main challenge of the Central Bank these days is to prevent the dollar from falling further. After a year in which the US currency revalued 105% – it started in 2018 at $ 18 and hit $ 42 on August 31 – now the effort is for the price to stay above $ 38 at the retail level.
The Central seeks to sustain the dollar to generate stability and this will allow it to gradually move forward with the drop in rates without reactivating the inflationary dynamic. Although inflation is far from being controlled, the stability of the dollar allowed the index to move away from the peak of 6.5% in September and to channel it to the area of 2.5% per month.
On Monday, the markets just opened, the Central announced that it would buy US $ 50 million to try to hold the currency and relocate it to the non-intervention zone. Although the dollar rebounded 0.4% at the wholesale level and reached $ 37.07, it remains 40 cents below the lower limit of the band. The retail dollar, on the other hand, was shortly after 14 in $ 38.21.
The one of today was the third intervention the Central one. Last Thursday he bought with US $ 20 million, on Friday he acquired another US $ 40 million and today with US $ 50 million, the maximum of daily intervention that the Central self-imposed.
The non-intervention zone was set up by the team of Guido Sandleris when he took over as head of the Central Bank. It began to govern on October 1 and establishes a band in which the dollar moves freely without the monetary authority buying or selling. This scheme is in line with the new agreement signed with the Monetary Fund and what it seeks is to avoid that the dollars that the international agency lends to Argentina to face the crisis vanish in the attempt to stop the exchange rate, as it happened with the first disbursements of the IMF between June and September.
When the nonintervention zone began to govern, on October 1, the band went from $ 34 to $ 44 – always for the wholesale market and the dollar was $ 40.
At the same time Sandleris promised not to expand the monetary base. In other words, do not emit more pesos, dry the liquidity space and thus reduce inflation and the dollar.
To avoid what happened between April and September, when inflation ate a good part of the devaluation, a mechanism of adjustment of the non-intervention band, of 2% per month, was established. That’s why today the band is at $ 37.41 and $ 48.46. The Central has an additional limit to intervene: in the accumulated month, purchases may not exceed 2% of the monetary base goal (approximately US $ 725 million, equivalent to 15 days of purchases).
In December, when verifying that the dollar, against the forecasts of a good part of the analysts, moved closer to the floor than to the ceiling of the band, Sandleris self-imposed to limit further the intervention possibilities of the $ 150 million per day originally planned for $ 50 million.
With 50 million today the Central already used all the ammunition allowed for the dollar to rise. However, he has other weapons to try to sustain the quote. The first is the reference rate, which is now at 58.11%. A month ago it was 59%. Each day, the Central Tender Leliq, a bank financing instrument that serves as a reference for the market rate. The high rate is the other side of the low dollar. With attractive returns – fixed terms yield more than 40% annually for retailers and close to 50% for wholesalers – investors prefer to stay in pesos rather than go to the dollar. The negative part is that the high rate leaves the productive sector and the consumer without financing and, in this way, the recession deepens.
Sandleris’ position is to be very cautious in lowering rates. The monetary policy agreement states that in order to lower rates there must be evidence that inflation is falling. Tomorrow the inflation of December will be known, which is estimated to be 2.5%, and a similar figure is expected for January. Although these indexes are below the jump of September, October and November, the Sandleris team believes that there is still no certainty that inflation has started a path with no downward return.