In the city the dance came back with the green | The quote …

The uncertainty of exchange has returned to the local market. The dollar started the week with a rise of 1.44 pesos and closed at 39.94 pesos. The exchange rate again showed high volatility. This movement led to a sharp decline in the strong currency of equities and government securities. Country risk has further increased to nearly 700 basis points. Investors have begun to dollarize their badets and demand a higher rate of interest in local currency to stay in pesos. The withdrawal of reserves is the other element that worries the market, as well as the absence of a medium-term plan, which strengthens the foreign currency hiding place.

The monetary entity, in charge of Guido Sandleris, had managed, with an ultra-contractual program of the monetary base, to ease the tensions on the exchanges between October and mid-November. The exchange rate, after peaking at over 41 pesos in the last days of September, had fallen back to the floor of the band and had changed by nearly 36 pesos. But from last week, there was again tension with the dollar and this week began with a wave of purchase that brought the price down to about 40 pesos.

Today, 134 844 million pesos have been sold to Leliq and rates have again slightly decreased. An average yield of 61.24% was offered, against 61.41% last Friday. The maximum rate was 61.75%. This is a drop of almost 14 points from the 74% recorded in mid-October. Investors once again increased their expectations of devaluation and asked for a higher interest rate in order not to dollarise badets. The situation is reinforced by a central bank that loses reserves at rates above $ 100 million a day.

Reserves stand at $ 51,591 million, a decrease of $ 145 million. The BCRA has lost $ 2451 million since October 30, the year of the strengthening of the International Monetary Fund. This means that 44% of the extended IMF loan was lost in less than a month. This is a trend that raises fear in the market and highlights the lack of sustainability of the macroeconomic strategy.

Exchange rate uncertainty is starting to be a problem for the plant. The wholesale exchange rate was 39.05 pesos, up 1.45 pesos, for a total volume of $ 724 million. The price of the currency continues for the moment, with a margin lower than the ceiling of the exchange band (46 pesos), but the volatility of the currency already has an impact on expectations. This complicates the intention to slow inflation towards the end of the year. The risk of a new exchange of currencies remains latent and distorts the vision of financiers for the coming months. The electoral element next year is another pressure factor. Local investors tend to increase the level of currency hoarding during elections.

The operators of the city offer a simple but reasonable explanation for the return of the instability of the exchanges. Interest rates in pesos are at very high levels. In October, he earned 5 points in pesos for making investments in pesos. During the same period, the exchange rate appreciated by almost 15 points. This means that the economy has offered those who bet on the peso a hard currency yield of nearly 20%. These returns become very difficult to maintain for a long time. Sooner or later, the dollar rises again or the rate of interest in pesos decreases more strongly. The second did not take place.

The key element to understand trade uncertainty has an antecedent with Lebac. The high profits offered by these securities, as they have been offering them since October, the fixed terms and other badets in pesos, are only realized if the investor manages to exchange the local currency for dollars at a price favorable. The last one that sells badets in pesos to switch to foreign currency loses because it does it with a high price in dollars. This generates a spiral effect that reinforces the instability of the contribution and in which dollarization is returned.