The economy trapped between financial speculation and weight devaluation

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At the time of writing this note, the value of the dollar He had reached a new historical record. The dollar accumulates a 350% increase from the beginning of Macri's government, with the consequent wage fall, retirement and retreat rates of the real economy at the levels of 2002. We will focus on the very short term to try to understand the policy of the Central Bank, if it exists. From this column we have insisted on the tension between the interest rate and the rate of devaluation form an explosive path that can end, In addition to a currency exchange, in a banking crack.

The question to be formulated is how one can go without scales of a publicized January of stability achieved, in which Guido Sandleris he promised the president a calm dollar until the end of the year to guarantee its electoral possibilities, to a February of change of tendency with a significant devaluation of the weight, for the beginning of a March with spiral edges in the increase of the exchange rate? Let's see what happened in the first two months of the year. The table below shows the behavior of the tension between the rate of devaluation and interest rate, and the benefits reach in one month and another of the financial bicycle, more nicely called "carry trade".

You can see that in January, the so-called "stable month", the monthly rent of a fixed-term wholesale deposit was 3.94%, while the value of the dollar fell by 2.34%. Consequently, the interest rate won by a landslide at the rate of devaluation. An important investor who had traded his dollars in pesos at the beginning of the month would eventually see their positioning he gave him a monthly income of 6.44% in dollars. Such a "carry trade" gain therefore explains the very expensive calm of the currency and that the Central Bank was able to increase its reserves through direct purchases on the foreign exchange market. U $ S 986 million, fact that it has not happened since June 2017.

However, in February this trend of strong financial returns in dollars was reversed because the devaluation reached 4.73% against a financial profit of 3.49%. That is, if the same saver, tempted by the strong gain of January's carry trade, had renewed his position in February, he would have lost 1.18% in dollars. However, the BCRA accumulated US $ 1.122 million in its international reserves in that month.

The first fact to keep in mind is the irregular behavior of the Central Bank in the first months of the year, where it validates a disproportionate profit in dollars produced by the financial bicycle of 6.44% in January and a loss for the same operation of -1.18% in February, a fairly wide gap between the two months. However, international reserve funds rose at an average rate of over $ 1 billion a month.

The immediate answer is that in February, the dollars from soy and corn exports began to flow, since it is the beginning of the settlement period, which generally extends throughout the first half. These "commercial dollars" have a different origin than the financial dollars actually introduced in January due to the differential in financial income.

The ratio of interest-rate to devaluation operates, therefore, on two different dollar bid markets. The first on the foreign currency from exports and the second on short-term speculative capital. It looks like this BCRA has changed since February to capture foreign trade dollars, validate the outflow of capital caused by the fall in financial income.

March expresses at the beginning that this conflict develops in a spiral. The currency in foreign currency in the first week of the current month was 7.73%, which reveals that the flight of short-term financial capital – or "dollarisation of portfolios" as market analysts say- Accelerates before a governing body that seems willing to validate a new value for the dollar.

This, which could be read as a monetary and exchange policy in fine-tuning with the market to capture the largest amount of dollars from the liquidation of exports, is not, since it incubates, as was said at the beginning , a huge risk of bankruptcy derived from the jump in the exchange rate.

The new Central Bank authorities, led by Guido Sandleris, has decided to issue financial instruments intended exclusively for inclusion in the banking system. That is, when a bank acquires the so-called liquidity letters (LeLiq), it does so by using the financial capacity allocated to it by deposits that it collects from savers. The banks today bought the entire LeLiq stock, which amounted to the end of February a $ 825.038 million. Therefore, if fixed-term deposits are dismantled to buy dollars, the Central Bank must monetize, that is, give pesos, for the Leliq stock that it has issued. With which, the volume of pesos can affect the foreign exchange market demanding dollars It is huge

What is evident is that the risk of a sharp acceleration of the devaluation in March may cause a run to the bank for the exit of fixed-term deposits seeking to take refuge in foreign currency. In this way, the start of a currency exchange would lead to a bank run which, in turn, would aggravate the former.

In the first two months of the year, the Central Bank has exacerbated the conflict between financial speculation and weight devaluation to accumulate international reserves in both directions. This seems to have been controlled in January and February is at risk of going out of the channel in March and the volatility magnitudes they can reach are very serious.

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