After the new measures, the Central Bank managed to acquire US$60 million, but official offices fear greater dollarization pressures
By Claudio Zlotnik
16/05/2023 – 07,00hs
A quick look at the first business day after the disclosure of inflation of 8.4% in April can be reassuring: the Central Bank acquired US$60 million in the market, product of the liquidation of US$78.8 million of the grain companies, within the framework of the “soybean dollar”. However, economic team officials privately admit that the situation is not calm at all.
The exchange gap became a true obsession for the Minister of Economy. Sergio Massa knows full well that a rebound in financial dollars will bury the possibility of maintaining fragile stability.
For this reason, yesterday the day ended with some concern, with the rise of $9 in the blue dollar, which reached the highest price in three weeks: $483.
The relief came from the table of Reconquista 266, with the purchase of US$60 million.
Unlike a month ago, when the surprise inflation data for March triggered a currency run, now Massa has focused the entire administration behind the stability of cash with settlement and of the MEP.
This time, with an unexpected new index for April, Massa and his team took action before the markets opened. The most relevant, the six point rise in interest rates.
The stability of financial dollars, a key objective for the Government.
Behind the dollars more than the prices
The measures announced last weekend have a central objective: to avoid the skyrocketing of financial dollars. Let the gap stay put, at least for the next few weeks. Massa desperately needs soybean dollars to come in.
It is the only way that the delicate exchange balance will be sustained until the August elections.
Instead, price dynamics run in another lane. There were no anti-inflationary measures. After 8.4% in April, it is most likely that this month it will remain in that range. Or even climb to 9%, after the increases in electricity and gas rates at the beginning of May.
As of now, it seems clear that the only way for this process not to spiral is through a forceful recession. Some items have already begun to feel the effect of wages that depreciate in real terms: There is no income that can accompany more than 8% monthly inflation. The recessive cycle seems inevitable.
Massa believes that any stage looks better than a devaluation. An abrupt devaluation in this context would have an unpredictable outcome. How high would the exchange rate and inflation rise if controls were loosened?
That scenario is the one that Massa wants to avoid at all costs. For some time now, for him, avoiding a disruptive devaluation has been a “question of State”.
Without anti-inflationary measures, inflation in May may remain at a level similar to that of April.
Internals behind the ads?
The decision to make announcements after record inflation in April was not without internal bids.
Massa believes that to regenerate expectations, to prevent inflation from continuing to feed back month by month, fiscal measures are needed. It is not enough with a rise in interest rates, at this point.
However, that was not possible. Close to the minister they deny friction with the Kirchnerist wing of the coalition, and even less so with the Casa Rosada. However, a more fundamental package of initiatives was left aside, once again.
From the official offices they do not want to give clues about future measures, although the door was left open along with the official statements on Sunday first thing in the morning.
Is the minister saving one last letter in case the exchange market overheats again?
Reserves: the dream of 2,000 million dollars
It is clear: the situation of the reservations it’s suffocating. From the Palacio de Hacienda they assume that during the second half of this month at least US$2,000 million should enter. A possibility that would only materialize if the Central Bank can sustain the precarious stability of the exchange rate gap.
Sergio Massa hopes to achieve relief for the BCRA reserves.
Sergio Massa made the decision to intervene directly in the dollar market and terminate the agreement with the Monetary Fundwhich precisely prohibited that tool.
The Minister of Economy has just vindicated that decision, in his speech before leading businessmen at Amcham, the chamber that brings together US-funded companies in Argentina.
Everything is to avoid a jump in the exchange gap. The question is whether this combo announced in the last few hours will be enough. Nobody puts their hands in the fire.
