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In between, it is clear that a lot happened. The exchange rate depreciated by more than 100%, and the BCRA sold foreign currency to the private sector – strictly, between March and September, for US $ 16 billion.. Also the exchange rate storm – attributable to a vademecum of internal errors and external scenario – liabilities settled with BCRA cost (Lebac, and now Leliq) of about $ 70,000 to $ 20,000 million.
But we can say that Did the calm come after the storm? From our vision, yes. This is in a context in which we understand that BCRA currency purchases "only" begin, and this reflects the greater supply of private dollars. It's not the same surprise.. In particular, it is the consequence of the fiscal equilibrium policy, associated to the monetary defined since October after the reduction of the current account deficit.
Because? The current account deficit of more than 5% of GDP in 2018 reflected Argentina used dollars to finance the excess of domestic spending. Consequently, reducing it simply meant shrinking public and private expenditures, or shifting from the economy to the public (zero fiscal deficit) and private savings (explained by the increase in the share of pesos and lower expenses in dollars).
This path is summarized with the agreement signed with the IMF that will give us the public dollars "fulfilling the fiscal goals of Argentina", in addition to a BCRA that decided not to issue anything / little.
On the fiscal side, the national government intended to close the 2018 primary deficit target and 2019 between raising taxes (new tariffs, financial revenues and adjustments to taxable minimums less than inflation), controlling expenditure (public wages). below inflation) and cut investment to approach "clearly" 0%.
This means that "the availability of IMF dollars to pay financial obligations would have a high probability of occurrence."
On the private savings side, the sharp devaluation meant a low "dollar" measure of private income that led to lower spending on tradable goods, which is reflected in the short run in a sharp drop in imports (the decline in car sales and travel and tourism is a clear example). These effects were the first manifestations in relation to the adjustment of the current account deficit, which was evident in recent months, with the emergence of the trade surplus.
We understand that this dynamic will be accentuated forward, where the biggest crop of the new crop will begin to appear, added to Exports of dead cow gas, meats and demand from Brazil translated into industrial exports and regional economies, since in relation to the peso devalued 50% of the real. Simply, more private offer of dollars.
Now another leg of private savings also manifests itself in greater possession of pesos; or seen from the other side, a sharp drop in private dollarization. Between 2016 and 2017 there was private dollarization of US $ 900 million on average monthly, which more than doubled during the "currency storm" to a monthly average of US $ 1955 million, decreasing to US $ 500 million the last quarter of the year. Another surprise or consequence?
In this same analysis, the BCRA policy comes from October. We have no doubt that the calm was accentuated by the "Bundesbank simile", in which the BCRA was transformed, which, in "monetary" terms, led to a weight shortage (the monetary base in real terms is very low), raising nominal interest rates to sidereal real – and very strong.
Stopping the expansion of money consistently seeks as a key objective to reduce the inflation rate by 20/25 percentage points by 2019 (from the level of 48% per year by 2018), and gradually decrease rates.
Here comes the "recent" (and to our understanding also initial) BCRA currency acquisitions. What do these purchases reflect? Simply that the economy wants more weights, either for applications at a passive interest rate (in positive real terms, for the first time in more than 10 years) or for a larger activity (an effect that does not yet prevail). Then they appear inside the offer not only export dollars, but also those accumulated in the pockets.
Will this "situation" lead to a balance? From our position, yes. This, while it lasts, continues a rigid fiscal adjustment (the same government has no option) combined with a "Bundollbank criollo", with a clearly anti-inflationary objective. Like this, the positive real rates came to stay, as well as a greater supply of dollars – at least in the year 2019.
(*) Chief Economist for Personal Portfolio Investments (PPI)
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