When will the effect of devaluation end?

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When will the effect of devaluation end?

The multilateral real exchange rate index (TCRM), which measures how far behind or ahead of the dollar is, shows that by about February 15, the fuel for the devaluation that Xavier Miley’s government has imposed from December 13, 2023 will run out. Will go. TCRM stood at 161.4 points that day compared to 74.5 points the previous day.

Some analysts propose Mandatory that there is a new improvement Because crawling peg The (daily devaluation) of the peso lagged far behind inflation. The result is that the exchange rate is rising rapidly, creating problems for exporting companies in liquidating their dollars.

Before the devaluation, the official dollar needed a correction of 25.5 points to reach its equilibrium point. What happened next was actually an exaggeration. Instead of implementing the required amendments, Central Bank President Santiago Bausilli took it up 61.4 points.

In this way, they kept a variety of free dollar quotes stable, such as cash with settlement (CCL) and stock market dollars. The difference between official and this type of financial quotes decreased to 20% and remained that way for a few days.

For more than a week now, the gap between the official dollar and the financial dollar has widened to 60%, indicating a major decline in TCRM. Since the devaluation was carried out by January 25, inflation has eaten up about 40 points of competitiveness. Devaluation in drops is happening less than CPI. It is losing at the rate of 1 point per day.

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Dollar difference limit is 60%

CCL Dollar up 36% in last 28 days; Inflation was about 25%; Dollar linked up 27%; CER bonds, 17.5%; Dual, 16.0% and fixed term paid TEM of 9.0%, while the official dollar remained almost unchanged.

Some analysts believe that a new correction is inevitable, as the creeping peg

According to Aurum Valores estimates, the official dollar price of $800 at current prices will be worth $614 on December 13, marking a quick end to competitiveness.

The Portfolio Personal Inversion (PPI) indicates that the market is somewhat optimistic about the path to deflation, although they are pessimistic. His approach is based on:

    • Low interest rates maintained by the Central Bank are not stable, leading to periods of high inflation
    • A strong acceleration in the pace of devaluation and at the extreme, another isolated surge is likely on the horizon if the exchange rate differential falls below 60%.
    • The energy rate increase will last longer and be more aggressive than expected.
    • On the other hand, CCL volatility continues to affect carry trade strategies, generating a strong outflow of instruments in pesos. Loan Index Weighted in Pesos Base 1
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Juan Pedro Maza, head of fixed income strategy at Cohen Argentina, believes the gap is 60% after one month and after the exchange rate bounce on December 12, 2023, the financial dollar has regained lost ground against inflation .

At current prices an official dollar of $800 will be worth $614 on December 13

“At these prices, we believe it is a good time to short a position in the dollar rotate peso devices (which pay around an 8% monthly rate).

The strategy of selling dollars to invest in pesos is known as a carry trade. With rates in pesos hovering around 8% per month and a creeping peg of 2% per month to the official dollar, the determining factor will be if the spread does not grow enough to compensate for these 6 point differences.

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Mazza suggests that there are several factors that lead him to believe that The maximum difference is 60% And from now on it should remain stable or even fall:

    • Cohen expects bonuses for importers, more success in tenders for Boprial.
    • The government continues to absorb the peso through various channels. For the purpose of fiscal balance and cleanliness of BCRA’s balance sheet, there will be no monetary problem while the Treasury will absorb liquidity through its debt tenders.
    • In parallel, the BCRA accumulates dollars. Since December 12, it has maintained a strong pace of net buying in MULC, helping it accumulate US$5,225 million. This helped us rebuild reserves of US$ 3.6 billion. With very positive trade balance prospects in 2024, Argentina is preparing to meet the accumulation objective US$8,000 million of reserves in the year.

Ultimately, the government still has tools at its disposal to calm the financial dollar. In particular, it could increase monetary policy rates to increase the attractiveness of taking positions in pesos.

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