Dollar, rates and inflation: the latest forecasts from the gurus

“There may be a slowdown but it will be slow and in the second half, it will be above 4 or 5% and annual inflation will be above 70%.”

“Although there is an accelerated process of inflation in the world, it is also true that there are no clear policies, there is no anti-inflationary plan, the improvements in expectations generated by the agreement with the IMF were lost and the difficulties were exacerbated.”

Sigaut Gravina, director of Macroeconomic Analysis of the Equilibra Consulting added that “the internal government and the lack of policies in the economic sphere coordinate the expectations of inflation and it does not stop with the rise in interest rates.”

Regarding the rise in the dollar, he said that “it is motivated because the Central Bank is having a hard time accumulating reserves, the level of purchases is very low, compared to other second quarters.”

“If he did not do it in the time of fat cows, with the high sales of the field, in the second half of the year the offer of dollars will begin to drop and that will surely bring a lot of restrictions,” in statements to Noticias Argentines.

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“The rise has to do with a combination of factors, the gap fell due to the agreement with the IMF, until it woke up first due to a significant withdrawal of investment funds, there were doubts about the titles tied to the CER, because a disarmament was registered of funds, the private ones got scared disarming the positions in those bonds and that generated more liquidity that went to the dollar”.

Added Sigaut Gravina that “the savers returned to a safe haven, the companies needed more pesos for the payment of bonuses and profits and the rest went to the financial market that woke up in just two days.”

“Although there is an accelerated process of inflation in the world, it is also true that there are no clear policies, there is no anti-inflationary plan, the improvements in expectations generated by the agreement with the IMF were lost and the difficulties were exacerbated because anchors were not generated. of certainty”.

The director of the Center for the Study of the New Economy (CENE), of the University of Belgrano, Víctor Becker, said that “there is a global phenomenon due to the announced increase in rates in the United States, which produces an outflow of capital from emerging countries , and Argentina is no exception”.

“In addition, the Central Bank is issuing more than expected and those pesos go to one place, which is the dollar and affects the blue,” he added in statements to Noticias Argentinas.

He explained that the rise in the dollar “also has to do with a particular phenomenon and that is that since last week there has been a liquidation of bonds in pesos, for fear that the next government will carry out a restructuring.”

When commenting on inflation, he pointed out that “we fell from 6.7% in March and we began to celebrate but there is not much to celebrate, with a 5% monthly increase in price.”

He anticipated that “with the increases scheduled for June in prices such as regulated prices, telecommunications and others announced, we are going to be closer to 6%, rather than 5% in the coming months and that leads us to annual inflation of between 80% and 100%”.

“Inflation is very high, practically no country has it and it will continue like this until there is no anti-inflationary plan and expectations improve,” added Becker.

Regarding Tuesday’s tender, Portfolio Personal estimated that “the rates At first glance, they seem to be below what these titles offered in the secondary market”, since “the Lecers to October and December were placed at 2.02% and 3.01%, respectively, which is around 120 and 75 basis points below the market”.

Along these lines, the PxQ consultation, led by the former Vice Minister of Economy Emmanuel Álvarez Agis, published a report that states that “the tender, although reduced in magnitude, once again showed that the economic team takes time to respond and coordinate, and seems to have uneven times. compatible with the current level of risk. “The CER bill curve, which until a week ago was negative until January 2023, today only shows negative returns on paper as of June and July 2022, and this as a consequence of BCRA intervention,” he said.

All eyes, then, will be on the Central Bank’s decision. The dispute between different sectors of the government over the interest rate scheme has been going on for a long time. While from the Ministry of Economy they are more likely to hold back increases, some members of the BCRA insist on the need to give somewhat more aggressive signals. Until now, Minister Martín Guzmán prevailed. Market discussions about the possible adjustment made by the Central Bank put a floor of 200 basic points on the correction.

Santiago López Alfaro, president and partner of Patente Valores, estimated in dialogue with Ámbito that, if the BCRA retouches 200 points and leaves the Leliq TNA at 51%, that is consistent with an effective rate of 65%. If progress was made in this direction, the Central Bank would not change the more conservative rate modification strategy implemented throughout the year. Other analysts considered that the breakeven rate between the Leliq and the long Lede is around 350 basis points.

How important is the rate? Miguel Kiguel, director of Econviews, told Ámbito that the rate signal “is very important” for two reasons: “First, because it is the only effective instrument that the Central Bank has to fight inflation. And second because it helps control the exchange rate a bit, making the weights more tempting.” “In any case, it is a difficult moment due to the lack of confidence, but it would surely be a good start if the Central Bank had a more aggressive attitude than it had until now, where the increases were between 200 and 250 basis points,” he added. .

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Federico Furiase and Martín Vauthier, from Anker Latin America, add a signal regarding the rate scheme that the Government must give so that it serves to decompress the exchange issue. According to your reading, the interest rate in pesos should be above the rate of the crawling peg. In this way, deposits in pesos would be rewarded and the exchange imbalance that stimulates greater imports and discourages exports would be discouraged, an account that also wears down the accumulation of reserves. In May, the rate of devaluation traveled to 4.1% per month and jumped to 4.3% so far in June.

The risk that some analysts see if the Central Bank validates a very strong rise is that the market, especially the banks, wants to change the “Treasury risk” for “BCRA risk”. That would imply the disarmament of debt positions and a transfer of those funds to the money market.

In the government, meanwhile, some officials admit that the rate scheme may be a strong issue in the upcoming negotiations with the International Monetary Fund, which has demanded positive yields in real terms.

Beyond the rate sign, in the city there was a coincidence: they look at fiscal spending and point to it as the cause of the problems.

The reality is that free dollars are increasing and not only because the Central Bank continues to issue a lot, and therefore makes the purchasing power of the peso fall and that -as would happen with any currency- is immediately noticeable in the free exchange markets”, explained Aldo Abram, director of the Fundación Libertad y Progreso. “This also happens because there is more and more uncertainty, which lowers the demand for pesos. If the demand for a product falls, for example, but the supply remains, there will also be a loss of purchasing power. Here it gets more complicated because not only does demand fall, but supply increases. And that is going to be reflected in the foreign exchange market,” he added.

The economist highlighted another factor that adds to the “combo” that has made the alternative exchange rates rise in recent days: “Because of the uncertainty, people are not only going to escape the peso, but also every asset that is local. This is also done through the foreign exchange market.. Conclusion: this also pushes parallel dollars higher. The uncertainty factor is one of the factors that is causing these exchange rates to grow.”

But, in turn, uncertainty also makes people invest and consume less: if you invest and consume less, you save, and you save in foreign currency. With which this obviously makes the economy tend to grow less moving forward,” Abram added.

In this context, the increase in alternative dollars and the consequent widening of the gap, turn on a series of alarm lights for the economy. “In the short term, the distortion and incentives imposed by a higher gap in a context of rising inflation and high uncertaintythey open windows of opportunity (‘flight to consumption’) for the acquisition of durable goods and the replacement of capital goods”, pointed out the Ecolatina economist Santiago Manoukian.

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However, in a scenario of worrying scarcity of international reserves, the widening of the exchange rate gap generates incentives to underinvoice exports and overinvoice imports, encourages the demand for dollars due to devaluation fears and reduces settlements in the formal market”, remarked Manoukian, who added: “These behaviors put even more at risk the goal of accumulation of reserves and the need to maintain the economic reactivation of the first part of the year”.

For his part, Claudio Caprarulo, director of Analytica, highlighted that “The increase in the exchange rate gap is very bad news”. “Between March and May it had been below 80% and now it is close to 100% again. It deepens the incentives to import above the needs of the current levels of production and consumption, product of the sensation of a cheap official dollar and greater expectations of devaluation. That also in a context of so much uncertainty makes it difficult to coordinate prices and reduce inflationary inertia, with its consequent negative impact on the recovery of wages and consumption “he underlined.

Regarding the rise in financial exchange rates and inflation, Abram stressed that “it is also true that to the extent that the dollar is reflecting a loss of purchasing power of the peso, which is immediate, this is anticipating that in the future all goods and services will reflect this loss of value of our currency in their price”. “It is anticipated that there will be more inflation going forward,” he remarked.

This future inflation will affect consumption and economic activity. Because when we talk about inflation, what we are talking about is a reduction in the purchasing power of the peso, of wages. With which, this loss of purchasing power impoverishes people, that the poorer they are, the less they consume. And it is also true that the more inflation there is, the more uncertainty is generated. With which, there is a vicious circle that affects, because the demand for pesos falls and the loss of purchasing power is enhanced, and also because more uncertainty means less consumption and less investment. And that also affects the level of activity. We are entering a very dangerous vicious circle,” Abram concluded.

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