In the Central Bank estimates that the "financial bicycle" between the peso and the dollar has been reduced to US $ 500 million



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One of the first and rapid effects of zero emissions policy, with high reserve requirements and consequently high interest rates, with a current gap of more than 30 percentage points in relation to the one-year inflation rate, is that more residents use fixed-term deposits in peso-denominated banks, and lower speculative funds enter the country in search of an easy income in hard currency given the expectation of low expected devaluation.

Among the arguments that are used in the Central Bank to explain this phenomenon highlights "the role of interest rate flexibility to rise or fall, in case of significant movements in the flow of capital from abroad, along with a large area of ‚Äč‚Äčnonintervention in the currency exchange that makes the price of the currency also fluctuate strongly, as happened in some passages of the last week.

The technicians note that "the non-intervention exchange zone, which is very open, 29% between the tip of the current average selling price of entities to customers of just over $ 36 and the purchase, almost $ 47, differs from classic intervention band of other times, in that it does not imply a commitment to defend a parity, but that is a porous violation. "

Thus, at the last meeting of the Monetary Policy Committee, two new intervention criteria were established if the market value exceeded these extreme references:

1. If the exchange rate is below the non-intervention zone, the monetary base target will increase with purchases of dollars made through BCRA offers, which in December will be up to $ 50 million a day. The accumulated in the month of these competitions can not exceed 2% of the objective.

2. If the exchange rate is located above the non-intervention zone, the monetary base's target will be reduced with sales of dollars made through BCRA bids. To maximize the impact on liquidity, these offers will be up to $ 150 million, the maximum provided in the money scheme.

Concentration in the control of monetary aggregates

Also, the sources explained for Infobae that "the reduction of the monthly adjustment of the intervention range to 2% for the first quarter of 2019, based on the limits in force up to the end of December of US $ 37.1 and US $ 48 per dollar, is based on a sign that monetary policy is subordinated to the control of liquidity in pesos. "

And although this has not happened so far, it is emphasized that "interest rates will start to rise and fall, depending on the dollarization trend of the portfolios or the increased demand for money, not just for transactions but as a reserve of value ", although this is a slow process.

Thus, in an economy that receives many shocks, internal, due to political and external doubts, the external situation in the Central justifies the need to maintain a wide range of non-intervention in the foreign exchange market until, at least, ends of 2019, "to preserve the goodness of the floating exchange rate while helping to comply with the rigid monetary aggregate scheme and therefore acts as a fuse."

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