Rising prices and wealth tax may reverse exchange rate peace

The government’s strategy to reduce the gap between the official dollar and financial prices has been effective. It is not free, because in order to control cash with settlement, the BCRA and ANSeS sell low-cost, high-yield bonds, with which the day the Treasury has to cancel this debt, it will have to face higher payments than if these titles had been refused by the State. In any case, the costs are now relative: for the government, avoiding devaluation is a priority objective. This means that in your vision all the sacrifices you have to make to avoid hitting that wall will be justified.

Now something is missing from the exchange rate: fresh dollars. Exporters have not been able to provide smoother currencies so far. It makes sense: the ghost of an exchange rate jump has not disappeared. Thus, those who do not need to rush their operations continue to operate at the “normal” pace. The acceleration envisaged by the executive when it decided to grant a temporary reduction in soybean and grain retention did not in fact come about with the intensity expected. Other firms that sell abroad are very dependent on external demand and, in many cases, on the imported inputs they need to produce, as is the case with automakers.

At one point, there was speculation about an IMF contribution. But Martín Guzmán has ruled it out: they will not ask for additional funds (that’s what they have said so far). In addition, the agreement has not yet been concluded. The mission which was in Buenos Aires spoke of “good progress”, but specified that everything had to be calibrated again (a verb to which the Minister of the Economy is adept). In addition, it is highly likely that the agency’s board will wait until Joe Biden takes office before approving any deal with Argentina. The vote will have to be cast by Janet Yellen, the former Fed chief who is set to be the first woman to serve as Secretary of the US Treasury.

In short: With friendly hands operating in the market, the dollar cooling strategy worked in nominal terms but did not completely turn around expectations. Inflation of 3.8% in October reveals that economic agents are pushing up their prices. And as if that weren’t enough, the advance of the wealth tax has revived the demand for cash (as discussed in this column, many potential contributors are ready to put their assets as far as possible from the eyes of the AFIP).

The problem for the government is that inflation and the dollar are spillover variables. If November closes above 4%, as several economists are already predicting, then there could be a second wave of demand for blue and MEP.. Businesses are positioning themselves for the event that the situation occurs. The economy has not yet received a response if it is necessary to change cards.