What is behind the decline of the dollar and why rates fall? – 05/02/2019


There are two behaviors that clearly demonstrate a change in financial market conditions that deepens in early February.

O central bank been buying $ 75 million a day but the dollar does not react and the wholesaler continues below the "floor" of the exchange band.

And on the other side, on the opposite Investor Career for peso placements, it being understood that the interest rate is falling and the income that the savers can now get is greater than what will come.

The most visible reflection is the acceleration in the reduction of of liquidity letters (Leliq) of the Central Bank. This interest rate, which in December was 60.3% per year fell almost 6 points in January and dropped three points in just three days in February.

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a fall at the rate of one point per day of Leliq is the most compelling argument to explain the change of vision that the market has with a bet in the short term on the options in pesos favoring, in turn, the weakness of the dollar's entrance.

For illustrative purposes only: parallel price at US $ 37.20 , more than one weight below the official and only 10 cents above the wholesale price, which is the lowest in the market. The "blue" is on the floor in the unthinkable beginning of an election year.

The decline of Leliq (letters that the Central Bank places between banks to withdraw money from circulation) traced the following trajectory: at the beginning of December 60.3% per year, on January 2 was 59.41%, on 31 January at 53.68% and on February 5 at 50.39% with a minimum of 49.47% per annum in the tender.

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The Leliq rate comes from the offers that the banks propose to the Central Bank on a daily basis, which, in turn, defines the cut according to the objective of keeping the amount of money within the Central Bank's target. "zero growth" agreed with the International Monetary Fund.

In other words, it is the banks that are they are in a hurry to put the weights at decreasing rates on the assumption that at the end of the day and the month the rate will hit the dollar.

Leliq's lower income, as expected, translates into a drop in the deposit rate fixed term which on February 5 ended in 40.98% when the previous week was above 43% per year.

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One of the arguments that supports the fall in the rate is the expectation of a lower inflation of February. Economists who closely follow the question say that in January the increase in the cost of living would have been 2.8% and that in February will also hover around that level, since it would play in favor of the seasonal decline in tourism prices, but the increase in rates would contribute directly to one point.

But the most powerful argument for explaining the acceleration in rate cuts is the exchange market.

Within and outside the Government, it is recognized that the key to summer financial statement was the US Federal Reserve's announcement of what would be very prudent when thinking about raising the interest rate.

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This change of position (originally thought to increase three or four times in 2019) changed the direction of part of the capital that is now heading for emerging countries. The Argentine securities since the beginning of the year they are a reflection.

A key fact that became known yesterday was that Paraguay went to the market and placed a bond maturing in 2050 and received $ 500 million paying a 5.4% per year. Argentina today would pay more than 9%.

Argentina's risk ratio fell to 629 points (it would pay 6.29 points above what the US pays), but it would still be too expensive to raise funds.

The other point that helps the "veranito" is that the wheat harvest (There are early settlements by the grain companies and this much for a market that, even with a declining dollar, knows that it is a relatively high ticket price.

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That is why there is a "slide effect" which is that the more dollars Central buys, the more the expectation is that the ticket will remain below the floor of the exchange rate and that it will trigger the race to go to peso placements.

In fact, one beneficiary was the National Treasury that placed Letters (Lecaps) in pesos with maturity after the election date opening of an unthinkable source of funding four or five months ago.

The Treasury, for its part, has an important letter on the stock exchange that is IMF money that will begin to be sold in late March or early April to fund public accounts.

The Secretary of Finance, Santiago Bausili, announced that it will move to the market between US $ 6,000 and US $ 11,000 million which will constitute an important part of the supply of foreign currencies that Argentina will have this year.

Once again in recent economic history, the fluidity in the supply of dollars generates financial calm and encourages expectations of the ruling party in the election year.


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