The Central Bank could soon see the need to make a substantial change in its policy on the price of the dollar. the lofty inflation, which in April would be around 6%, is combined in Argentina with a less favorable international context due to the global strengthening of the dollarnow driven by the rise in interest rates that is coming in the United States.
The latter has already led to the depreciation of emerging currencies, including the real in Brazil, which led to el multilateral real exchange rate lag heavily in the last few days and start to walk away target agreed with the IMF to keep it competitive.
This appreciation of the real exchange rate is a factor that adds pressure for the BCRA to give more speed to the adjustment of the official dollar (crawling peg) and thus recover competitiveness, given that a deterioration in this sense could suffer the trade surplus that is needed at a crucial moment in which it is necessary to accumulate net reserves.
In the roadmap of objectives and plans for 2022, the Central Bank (BCRA) stipulated “preserving the levels of external competitiveness, gradually readjusting the crawling rate within the framework of the current floating regime managed at the rate of inflation”.
Likewise, the agreement with the IMF establishes that the real exchange rate must not fall below the average values of December 2021, although the economists clarify that this is an intention, and not a binding goal.
weight vs. dollar: strong exchange rate appreciation
Sebastian Menescaldidirector of Eco Go, told iProfesional that “Today the peak real exchange rate is 4% below the 2021 average.”
On the other hand, a report Facimex Values specified that the multilateral real exchange rate (MRTR) It has been appreciating markedly in the last rounds and is “at a minimum since May 2018, when the deep balance of payments crisis that Argentina went through was just beginning.”
The multilateral real exchange rate appreciated sharply due to the devaluation of emerging currencies, including the Brazilian real.
In that sense, Ferdinand Baerchief economist at Quantum Finance, noted that “Brazil helped in the first part of the year”. And it is that the appreciation of the Brazilian real and the united states inflation they gave some air so that the BCRA did not have to depreciate at a higher rate to maintain competitiveness.
“The change in the international context makes the factors that previously played in favor of going below inflation in the crawling peg now (put pressure) so that it has to speed up,” he assured. In Facimex they also remarked that “in the first months of this year, the world played in favor and allowed to hide the appreciation that the exchange rate policy induces, with the devaluation rate installed clearly below inflation, which remains around 6 % monthly”.
“Nevertheless, in recent days the dynamics changed as a result of the dollar strengthening against emerging currencies, especially due to the 7.5% depreciation of the Brazilian real in the last week. Added to this was the devaluation of the yuan,” they noted.
In this sense, the economist Federico Glustein explained that “the dollar began to strengthen in recent days as a result of a rise in interest rates by the Federal Reserve in a shorter period than expected by the market, so that, in the short term, there could be an outflow of capital towards the North American market and the Brazilian market responds to this situation, for which the real depreciated slightly”.
Is there room to continue appreciating the exchange rate?
Martin Vauthier, An economist at Anker Latin America consultancy, maintained that “with inflation of 4% like the one that occurred until January, the BCRA could be comfortable with a balance of a crawling peg moving at 3% per month, and an interest rate in the zone of 3.5%. Given international inflation, this allowed it to maintain the stability of the real exchange rate or not have a significant appreciation”.
“But the acceleration of inflation that we saw from February made it more difficult for the BCRA to meet the real exchange rate commitments that were included in the agreement with the IMF”he emphasized.
The acceleration in inflation complicated the objective agreed with the IMF on the real exchange rate, say economists.
In addition, Glustein He maintained that “the ITCRM is already at the levels of October 2014, appreciated by others, generating imbalances in the foreign exchange market, the BCRA has a hard time absorbing the foreign currency income of the harvest.”
In this framework, the economist argued that “There is no margin to continue appreciating the exchange rate, the BCRA has to accelerate the crawling peg above inflation.”
of the same look, Diego Piccardoan economist at the Fundación Libertad y Progreso, assessed that “there is no room to continue appreciating the exchange rate artificially, since the cushion that was there to do so disappeared in the paid plan electoral of 2021″. And he opined: “Now it’s time to pay for the party with an acceleration in the rhythm of the crawling peg that tarnishes, even if it is the inflation rate”.
For its part, Diego Martinez Burzacohead of strategy at Inviú, stated that “with a less favorable external scenario due to the migration of capital towards the US dollar, the so-called quality flight (fly to quality) put a stop to the appreciation trend of Latin American currencies. The BCRA, with little accumulated reserves in a relevant period of dollar supply seasonality, and with inflation in April and May showing significant inertia, is under additional pressure to do a faster peg crawl.”
Will the BCRA accelerate the rise of the dollar in May?
In January, inflation was 3.9%, while the official exchange rate climbed 2.24%; in February, the cost of living was 4.7%, while the wholesale dollar increased 2.31%; in March, the crawling peg was 3.3% monthly compared to a Consumer Price Index that increased 6.7%. In April, the official exchange rate moved around 4% per month compared to inflation that some private consultants estimate will be close to 6%.
In this context, Menescaldi evaluated that “As inflation comes in April, it is most likely that the BCRA will continue to use ballast exchange rate so that the prices do not fly away.
Economists do not expect the BCRA to speed up the crawling peg to match inflation.
“I don’t think the BCRA is going to dare to accelerate the crawling peg to recover competitivenessit seems to me that inflation is a more important objective”, argued the economist. And he speculated that “it could rise half a point plus the rate of devaluation, if the interest rate rises, but that will only happen when the next inflation data, not now”.
For its part, Vauthier He said that in the current situation “the BCRA faces a challenge” because if it “accelerates the crawling it also puts a higher floor on inflation in the coming months.” And he judged: “I do not see that the BCRA is going to accelerate the crawling to try to match inflation at these levels given the risks that are posed”.
Martinez Burzaco He agreed that “with such high inflation levels, I think we will continue to see a rate of depreciation below inflation and the BCRA will try to sustain this situation as much as possible”
Glustein He also agreed that the BCRA “will continue to depreciate the official dollar around 3.5%-4% per month, appreciating it. The economist warned that this appreciation will bring” serious consequences such as a brake on the import of intermediate goods, more frequent exchange runs, that sooner or later will lead to a cruder, more intense and offensive devaluation“.
The agreement with the IMF establishes that the real exchange rate cannot fall below the average value of December 2021
At what rate should it devalue to remain competitive?
Facimex analysts warned that “the objective agreed with the IMF of maintaining the TCRM at the levels of the end of 2021 is beginning to move away” and estimated that in order to meet it “The BCRA should accelerate the devaluation rate to 4.5% month against month between May and December”. “However, we believe that the BCRA is not going to take the devaluation rate above current levels, so unless external conditions help again, an appreciation of the TCRM in 2022 seems inevitable,” they estimated.
Baer He maintained that “the real multilateral exchange rate is between 4% and 5% below December 2021. Just to correct that, it should devalue 5%, and to that add inflation.”
“I do not rule out that not only does the crawling peg have to be accelerated at some point, but that they make some additional correction, some discreet jump that of the signal that there is going to be progress in an exchange policy a little more pro-exports and of accumulation of reserves”, he opined. According to his vision, “May, June, July is the moment to encourage an additional correction of the exchange rate having supply of currencies, that can help the shock to be a little lower and generate supply on that side”.
Instead, Vauthier asserted that “in this context, accelerating peg crawling does not help competitiveness either because that moves quickly to priceswhich ends up being a nominality race that is dangerous for the stability of the macroeconomy”.
“The only way that the real exchange rate does not continue to appreciate is by lowering inflation rather than accelerating the crawling. For that, given that today the traditional anchors do not work (exchange rate, tariffs, salaries), an economic program is needed that is credible for the market and that is backed by politics. In addition, it must be faced deterioration of the BCRA balance sheetgiven by an accumulation of liabilities in pesos in recent years for the financing of the fiscal deficit and net reserves that are scarce,” he said.