Uncertainty marks the financial market in Argentina. Although it has managed to reduce inflation, the other great ghost of the South American country, the price of the dollar against the peso, began to generate instability in recent days. Despite its insistence that today a scheme of free exchange rate, the Ultra administration decided to intervene in the market to stop the rise in the price of the US currency and its possible impact on the inflationary index. The Minister of Economy, Luis Caputo, accused the banks of not supporting government measures.
Since in April and established a flotation scheme between bands (between 1,000 and 1,400 pesos per dollar), Milei opted to bring the price of the currency to the minimum floor. The apparent initial success was drained in the last month, when the price of the dollar increased by 10% in pesos. This week the 1,300 pesos showed, its maximum since the end of the stocks.
Minister Caputo charged the banks for the fall of the peso against the dollar and argued that it was due to an excess of liquidity and a decrease in the interest rates that he pressed on the exchange rate. Behind the conflict is a decision of the government itself, taken as part of the agreement with which the International Monetary Fund (IMF) granted him.
Last week, the government canceled the fiscal letters (Lefi), a financial instrument that had launched the national treasure to absorb the surpluses of weights and limit the effects of the monetary issuance. The measure implied the disarmament of a stock of 15.5 billion pesos held by public and private banks. “The Lefi were supposed to be exchanged for Lecap. But the banks, fearful of losing daily liquidity, did not go with everything and preferred to make numerals,” he said, this Tuesday night. From the mass of pesos at stake, only one third ended sterilized through the capitalizable letters (LECAP), as the government intended, while almost 10 billion ended up as a circulating, pressed on the offer of dollars and, therefore, they pushed the exchange rate rise. It is an amount equivalent to 25% of the monetary base.
To neutralize that liquidity and block its turnaround to the dollar, the Government announced the surprise and not planned emission of new treasury debt titles, in pesos already short term. “The priority was always, is and will not be pesos, in order to consolidate the disinflation process that we are traveling,” said Minister Caputo.
In parallel, the government operated with two other tools on the financial market. To raise rates in pesos, the Central Bank (BCRA) offered the banks of title pass operations (known as “Repo”) with interest close to 30% for one day placements. On the other hand, he intervened in the term market with the sale of future dollar contracts, to lower expectations about drift in the price of the currency. According to private estimates, he did it for 2.7 billion dollars. Economy spokesmen argued that it was not an intervention – a bad word for Milei – in the change market, but the use of monetary policy instruments.
The government measures battery achieved the short -term objective and stopped the fall of the local currency. The price of the dollar, which a month ago was 1,160 pesos and had closed this Monday at 1,295 pesos per unit, ended this Wednesday in 1,276 pesos. In the informal market, the dollar blue It stopped in 1,295.
But the context remains complex for the Executive, politically weakened after Congress approved laws that weaken, and economically besieged since a Bank report JP Morgan advised to disarm investments in Argentine pesos. Now, sudden measures weakened both the official discourse on the free flotation of foreign exchange, and the statement that interest rates arise from the dynamics between supply and demand. Moreover, they sowed doubts among investors about the strength and sustainability of President Ultra’s plan.
