I followed all the dollar quotes in scope.com.
competitiveness
The real exchange rate with which the Fernández administration took office was above the historical average of the last four decades, -plus, minus- regardless of the calculation methodology. But the exchange delay perpetrated in the framework of last year’s elections takes away some room for maneuver from the BCRA given that the peso has already appreciated a little more than 13% compared to that historical average. This does not mean that the official real exchange rate is significantly behind, as it has been at various times in recent decades, but rather that it does not have much rest to fall asleep. Less with the guidelines of the agreement with the IMF under the arm. In this sense, even the most heterodox analysts recognize that they would be more comfortable with an official dollar at $125 (similar to that of December 2019), but they do not consider $109 to be a very backward dollar. Of course, everything depends on the inflationary context ahead. And of course also, of what happens with the rate of monetary policy interest.
Therefore, compared to the February data and the March surveys, the BCRA has two paths: to maintain the current rate of devaluation, which implies tending to a greater appreciation of the real exchange rate, that is, what is trivially said as lowering the price of the dollar, or else accelerate the crawling peg which entails taking the risk of injecting more fuel into inflationary expectations. So by one way, that of delaying, the BCRA will prolong the dynamic that has been observed since the middle of last year. While taking the other path, that of accelerating, there is a danger of raising the monthly floor of inflation even more. Hence, the 1816 analysts point out that this is one of the risks of the crawling peg: if, in the face of any acceleration in inflation, the spot dollar also accelerates, an unpleasant nominal run for the macro might begin. And as Quinquela’s strategists say, the February data generates the need to recalibrate an economic scheme that was designed for lower nominal rates, that is, the need to make decisions became imminent. Here the interest rate redefined by the BCRA also comes into play. Accelerating the rate of crawling peg will depend on the rise in the interest rate, since to the extent that the BCRA increases it, it will be able to accelerate the rate of depreciation without generating negative incentives for the liquidation of foreign currency.
back room
That is why we must not lose sight of the behind-the-scenes acceleration in the rate of inflation, which can be linked not only to the recent acceleration of the crawling peg, but also to the external shock to commodity prices, the strong monetary expansion, the adjustment of some regulated prices plus the behavior of public spending. Quite a combo.
As for the speed of devaluation, something has already been seen in recent weeks as a result of the rise in international prices. But that in view of the data for February already sounds insufficient. But this does not stop adding pressure to the range of domestic prices, both imported and tradable. On the other hand, the BCRA has just hit the “little machine” to assist the Treasury to close 2021. Now it seems to be behaving more cautiously. However, the full lagged effects of such a monetary expansion on the price level have not yet been seen. For this we will have to wait for the second semester. The same happened with public spending, which accelerated for the last elections and then showed a slowdown, but like the monetary issue, they also take time to have an impact on price formation and expectations. To all this there were also adjustments in some regulated services, especially non-subsidized ones. Now there is a queue that awaits authorization to increase more seasonally adjusted for this time. In short, inflation has more to contribute than to subtract, for the moment. We will see how the BCRA reacts. What you do with the rate will be a first sign. Especially since the option of a discreet jump in the exchange rate, that is, a strong devaluation that helps slow down the crawling peg and lower rates would have a double negative effect since, on the one hand, it would raise the fiscal cost through subsidies and gas imports. and it would inject more pressure on food prices due to the rise in commodities.
