Despite the intervention of the Central the dollar remains below the band

Yesterday, for the third consecutive day, the Central Bank went out to buy dollars to stop the decline of the currency. Although the US $ 50 million that it auctioned helped the US currency to recover 0.22% at the wholesale level, it was not enough to make it return to the non-intervention zone: it reached $ 37 and was placed 45 cents below the floor. the currency band.

The first day of the week was a positive day for the Government: the dollar remained calm, the country risk moved below 700 points for the first time in 40 days and the Central Bank validated a reduction in the Leliq rate to take it to 57.8%.

Yesterday was the third intervention the Central in the market. Last Thursday it had bought US $ 20 million, on Friday it acquired another US $ 40 million and yesterday it reached US $ 50 million, the maximum daily intervention that the Central self-imposed. Although the wholesale dollar rebounded 0.8% at the beginning of the round, it ended up far from the lower limit of the band, which yesterday was $ 37.45. The retailer closed at $ 38.07.

The non-intervention zone was set up by the team of Guido Sandleris when he took over as head of the Central Bank. It began to govern on October 1 and establishes a band in which the dollar moves freely, without the monetary authority buying or selling. This scheme is in line with the second agreement signed with the Monetary Fund and what it is looking for is to avoid that the dollars that the international organism lends to Argentina to face the crisis vanish in the attempt to stop the exchange run, as it happened with the first disbursements of the IMF between June and September.

Sandleris also pledged not to expand the monetary base. In other words, do not emit more pesos, dry the liquidity space and thus reduce inflation and the dollar.

To avoid what happened between April and September, when inflation ate a good part of the devaluation, a mechanism of adjustment of the non-intervention band, of 2% per month, was established. That’s why today the band is at $ 37.45 and $ 48.46. The Central has an additional limit to intervene: in the accumulated month, purchases may not exceed 2% of the monetary base goal (approximately US $ 725 million, equivalent to 15 days of purchases).

In December, when verifying that the dollar, against the forecasts of a good part of the analysts, moved closer to the floor than to the ceiling of the band, Sandleris self-imposed to limit further the intervention possibilities of the $ 150 million per day originally planned for $ 50 million.

With today’s $ 50 million the Central already used the maximum amount of ammunition allowed for the dollar to rise. However, he has other weapons to try to sustain the quote. The first is to insist on the lowering of the Leliq rate, which is now 57.8%. The high rate is the other side of the low dollar. With attractive returns – fixed terms yield more than 40% annually for retailers and close to 50% for wholesalers – investors prefer to stay in pesos rather than go to the dollar. The negative part is that the high rate leaves the productive sector and the consumer without financing and, in this way, the recession deepens.

Sandleris’ position is to be very cautious in lowering rates. The monetary policy agreement states that in order to lower rates there must be clear signs that inflation is falling. Today inflation will be known in December, which is estimated to be 2.5%, and a similar figure is expected for January. Although these indexes are below the jump of September, October and November, the Sandleris team believes that there is still no certainty that inflation has started a path with no downward return.

For some analysts, another measure that Sandleris could take would be to accelerate the reduction of bank reserves to dump more pesos into the market and increase demand on the Leliq, which would lead to a further drop in the rate.