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Braking the “roller” and saving reserves: the government’s financial strategy behind the blow to the Mep dollar

One month before the primary elections, the Government is determined to take care of the dollars of the central bank (BCRA) and avoid a jump in the official exchange rate that could cloud the electoral chances of the Frente de Todos. To do this, he resorts to direct interventions in financial exchange rates, but also adds regulations in the market, which seek to complicate financial operations.

In parallel, the Government’s intention is incentivize the market in pesos, even with inflation that has not ceased and whose interannual rate remains above 50%. The three keys to a financial plan looking to get to November.

Concern about reservations

During the months of high seasonality in the dollar settlements On the part of the agro-exporters -April, May and June- the BCRA bought a good part of these currencies in the market and used them to intervene on cash with settlement through the purchase of bonds in dollars.

As agricultural foreign exchange earnings fell, so did official purchases of dollars, averaging US $ 110 a day in May and falling to US $ 16 a day in August. However, with the elections getting closer and closer, upward pressure increased in the financial dollar market. In response, the intervention of the monetary authority in the financial market also climbed. According to calculations by Gabriel Rubinstein’s consulting firm, the daily loss of reserves in that market touched a minimum of US $ 7 million a day in May and reached up to US $ 26 million daily in August.

In the first days of this month, Bookings of the monetary authority almost US $ 600 million fell and they re-drilled the US $ 42,000 million. “Leaving aside payments to international organizations, which have a predetermined schedule, the key that shows the variation in international reserves in the last month is found in the item ‘others’, where US $ 570 million were lost (there, the loss of reserves for intervention in the bond market to lower the gap are mixed with the effects of the valuation of gold and the yuan), ”said Consultatio.

Limits to the “roll”

Now, why was the official intervention accelerated? Like a kind of self-fulfilling prophecy, purchases of certain bonds by the BCRA lower their price and leave them “cheap” relative to other similar titles. Traders take advantage of these differences to make a profit and the volume traded increases. Consequently, he had to adjust the regulations.

As early as July, there were a series of measures aimed at limiting transactions of this type, which led to multiple exchange rates and the emergence of the “Senebi dollar”. However, the arbitrations continued to occur and last Thursday the BCRA further complicated the operation of the Mep dollar and counted on settlement.

“The new measures are the result of the need to mitigate the effect of the previous restrictions. By intervening in the gap by selling AL30, the Government introduces a scheme of multiple financial exchange rates that come back profitable (and inevitable) arbitration (curl) ”, explained Consultatio. In this context, the BCRA established that the dollars obtained in the financial market must be credited to bank accounts in the name of the clients. Yes OK the rule does not restrict purchases from retailers, seeks to discourage them and make the “curl” unattractive.

With that, not only will there be less volume and need for interventions but there could be a additional increase in reserves. This was stated by Consultatio: “The objective of the measure is clear: to limit the retail operation that allowed arbitrage of the different exchange rates ‘counted with implicit liqui’ in the different financial assets and to favor the dollar transfers from client accounts (where they are not part of the reserves) towards bank accounts (which are included, as part of the lace).

Boost to investment in pesos

In the official dispatches they highlighted that the measures on cash with liquidation do not prevent the purchase of dollars and maintained that operations will resume normally next Tuesday, after the suspension on Friday. In any case, they acknowledged that they seek to reduce exchange rate operations in the stock market. “The Stockbrokers they will have to go back to work and stop being exchange houses”, Said official sources.

The unattractive investments in pesos lies in the negative rates in relation to the inflation -which is still above 50% year-on-year- and expectations of an acceleration in the devaluation of the exchange rate after the elections. Argentines, with experience in both processes, prefer to take refuge in dollarized instruments.

From the Government they argue that there are possibilities of coverage in pesos, with the bonds tied to the official exchange rate or the cedears of foreign companies -which follow the financial dollar- and also in the titles that adjust by CER. For now, the arguments they do not finish convincing investors, who expect a policy change after the legislative ones. “We see it very difficult that this monetary and exchange policy scheme is not deeply reviewed in the context of an agreement with the IMF, where it is one of the classic priorities ”, said Consultatio.

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