Raise rates to contain the pressure of exchange rates | …

Central Bank accelerated interest rate hike to contain exchange rate pressures. Leliq's performance reached 62.28%, an increase of 61 basis points. Since mid-July, the interest rate has risen nearly 400 points from the 58% floor. The contract measures of the agency in charge of Guido Sandleris go against what is happening in other emerging countries such as Turkey or even Brazil. International reserves fell $ 578 million in the day. The monetary authority lost 1097 million dollars in two business days.

Interest rate in the world

Countries lower interest rates around the world in an attempt to boost their domestic market. The most concrete case is that of the US Federal Reserve. Last week, we announced a 25 basis point reduction in the rate in order to reverse the recession forecast for the US economy. C & # 39; was the first time that the cost of & # 39; money was reduced since 2008. The Turkish Central Bank has taken the same direction. The finance minister said in early August that rates would be gradually lowered.

The monetary behavior of emerging economies is also repeated in the region. The Brazilian Central Bank cut its rate from 6.5% to 6.0% the same day that the reduction in the US and said the measure will collaborate to revive the recovery of economic activity. Argentina advances with monetary strategies totally opposed to the global trend. The level of imbalance does not allow it. Monthly inflation above 2% (nearly 60% year-on-year), exchange rate pressures on dollarization and short-term debt summarize the factors of instability.

What about the dollar?

The exchange rate is the main variable to follow this week. There are only a few days left for the STEP elections and the monetary authority remains vigilant to avoid a new bond of the currency. The price closed Tuesday at 46.48 pesos and recorded a drop of 20 cents. The lowest pressures in the world have been met: the Chinese currency has not yet devalued and major international badets have rebounded after the sharp fall on Monday. The exchange rate of the retail market jumped 79 cents earlier this week, a rise that could not be reversed Tuesday.

In the central part, they bet on two tools to contain the exchange rate tension until Friday. The sales contract on the future market is the main strategy of the & # 39; monetary entity and has been applied several weeks ago. The other is to take advantage of the interest rate cushion generated from April (when Leliq's returns went from 74 to almost 58%). Over the past 12 days the & # 39; entity in charge of Guido Sandler raised tariffs consecutively. They have exceeded 62% and market operators believe that there are still 10 points to win.

Will the reserves be used to contain the pressures?

The plant was now reluctant to intervene with direct foreign exchange sales on the foreign exchange market. But the fall of more than $ 500 million reserves Tuesday raises doubt among badysts. The withdrawal may be due to debt payments or monetary authority began selling reservations on the spot market. The Monetary Fund has allowed the agency to offer currencies but not to infinity. It has a sales cap of $ 6 billion (and a daily maximum close to $ 250 million). The main risk is that a non-timer intervention will eventually trigger panic among investors and heighten expectations of devaluation. The central will not inform within three days whether or not it participated in the foreign exchange market.