The five keys that help explain why the dollar was passed in early summer – 01/12/2019

The beginning of the foreign exchange scenario in 2019 is very different from the one that had ended in 2018. It seems relaxed and to the point that the price of the dollar pierced the floor of the zone of nonintervention of the Central Bank. Tomorrow the lower band will start at $ 37.45. Friday closed at $ 37.08 (the wholesale level is taken). In another order, the titles showed a recovery that country risk of almost 130 basis points (from 829 to 703) of their highs at the end of December.

Economists see reasons for the dollar's price to continue around the floor of the non-intervention zone. At least for the next few months. Here are some of the reasons behind the current scenario.

Improve expectations for change

In December, two surveys of Di Tella University showed data in favor of Cambiemos. One of them recorded an increase in the overall assessment of the government. From a low of 21.8% in October last year, it rose one point in November. And in December he climbed nine points. The other result of the UTDT is seen in the items of the Consumer Confidence Index. "Do you believe that within 12 months the situation of the economy will be …?" That is the question. 45% think so. In November this proportion was 38% and in October 36%. According to the results of a Elypsis poll conducted last week in December, the president's positive image has increased nationally. On December 30, the figure of Macri was at 32%, increasing 2 points from the previous week.

US Rates in Pause Mode

During the week the minutes of the last meeting of the Federal Reserve – Central Bank of the USA. At that meeting in December, the entity decided to raise interest rates. The minutes showed that many bank directors made clear that there is reason to believe that the slowdown in the US economy will reduce inflationary tensions, namely lower growth in emerging markets, financial volatility, trade war with China, and more fiscal-monetary stimulus low. Scheduled rate increases for this year can be postponed. Fed Chairman Jeremy Powell said at a luncheon at The Economic Club in Washington this week that he will not be in a hurry. If the US does not raise rates at the same rate as in 2018 – last year it did four times and there are already eight since the end of 2015 – the capital will have less incentive to be placed in Treasury assets and that will benefit the emerging economies and, eventually, Argentina. Trump was against the direction of monetary policy of the Reserve and continue raising rates. This makes the cost of financing the deficit and its plans to expand demand more expensive.

There will be dollars

At the end of the year the Treasury will arrive with a cash surplus of US $ 1,100 million. But before this surplus of dollars, the government will have secured the currency necessary to pay for the services and the payment of the debt. He will obtain sources for US $ 37,841 million, US $ 22,741 million will be provided by the Monetary Fund. through disbursements under the agreement wait "Half of which will arrive by the end of March." "This shows a manageable challenge," is Quantum's verdict on meeting the 2019-20 financial obligations.

The Bolsonaro effect

"The appreciation of the real helped the exchange rate with Argentina improving", says Juan Carlos Barboza, an economist at Banco Itaú in the offices of Buenos Aires. "However, in terms of trade, it boosts Brazil's growth more than with the peso-real ratio." Argentina exports about 20% of its goods and services to Brazil, but three-quarters of that proportion are vehicles. This means that bilateral industrial trade is less sensitive to changes in the value of currencies than to Brazilian demand. Brazil's GDP this year would grow 2.5% according to Banco Itaú's estimates.

Barboza sees a favorable expectation on the Brazilian economy, "specifically greater demand for its assets"The bilateral real exchange rate measured by the BCRA has improved for Argentina so far in January in relation to December, largely due to the appreciation of the real. Brazilian Treasury stock fell 12 percent in September to 9.2 percent on Friday. The Bovespa index broke the 90,000-point barrier.

The recession and the increase in tariffs

At the Central Bank, they admit that high rates discourage activity, although the fall in GDP occurred before the implementation of the current plan. They recognize that both importers and individuals have stepped up their throttle when it comes to demanding foreign currency. The reversal of the recession in consumption – about 70% of GDP – does not seem to be coming. Federico Furiase, of Eco Go, estimated that for inflation "to be close to the area of ​​30% per year in December of this year," with the price of the US dollar " should not move me more than 20% -25%. " That would give $ 47.5. The salary would still lose against inflation. "The need to achieve a controlled evolution of the exchange rate requires the fulfillment of the monetary program which, by its limits the margin to accelerate the rate decrease and boost credit"This year's private consumption would fall by 2% according to EcoGo.

This week, the Central Bank published data on the evolution of loans. The December monetary report confirms the trend: "All registered lines of credit fall, even those destined to finance the consumption of households, which had been making a positive or neutral contribution to the growth of total loans in pesos, says the BCRA's work, credit card financing accumulated a 12.7% drop in real terms in the year. This occurs in a context of falling sales in shopping centers, which – according to the latest data available – showed a real fall of 18.7% in October compared to the previous year. On the other hand, personal loans have completed an annual reduction of 18% in real terms. "