How can you get the Exchange Rate in Argentina?

In recent years, prior to the start of the international financial crisis, the Central Bank of Argentina (BCRA), had to work hard to preserve the nominal exchange rate was about $ 3 plus or minus 10 cents. Great was the criticism he received the monetary authority had shunts that inflationary policy. The answer to such criticism by the Central Bank was seeking to preserve such action and exchange rate stability while accumulating international reserves as a safe anti-crisis. Turbulent periods claimed responsibility for the actions of BCRA international reserves, which prevented the install external crisis in Argentina's economy and generating unpleasant episodes are used to living Argentine families. Since the international financial crisis hit, the dollar appreciated slightly in Argentina is moving from that averaged $ 3.10 to $ 3.15, value that remained until the dispute between the Argentine government and the increased uncertainty resulting field outflow of deposits dollarization of the financial system of portfolios. The response of the BCRA doubled the bet, take the dollar was trading at a value close to $ 3.00, together with the decision to apply a rise in deposit interest rates, seeking thereby curb dollarization and the flight of deposits to time to strengthen the nominal anchor for prices.

But for a little over three months, the economic picture is very different in Argentina. So much so that yesterday, the Argentine site "Reporter?, Reflecting the greater consensus among analysts that business and the Argentine government this week confirmed a new band of floating of the dollar with a new floor at $ 3 , 50, with the aim of protecting the domestic economy. Here it is worth remembering that on 1 September, the dollar traded at around $ 3.03 Argentina. On the day of Friday, the dollar had closed at $ 3.47 shales at the top retail sales clerk. The commitment made by the market, the continued depreciation of the peso. In this sense, the futures market operated Rofex to $ 3.50 by the end of the year and $ 3.55 in late January. It is important to note that in this market operative involved with the Central Bank, which means that without your intervention, the futures price of the dollar would be higher than observed.

In fact, New York, for NDF contracts, specific operations in the conference were agreed on Friday to $ 3.85 to 30 days. This upward movement of the dollar in recent weeks, when it's only a couple of months, the Central Bank struggled to turn down the exchange rate, creates some uncertainty about what is happening in Argentina's economy. And what is happening is not too complex explanation and which is linked to changing economic environment both domestically and internationally. The sharp drop in agricultural commodity prices (the price of soybeans rose in a short time from a peak of U.S. $ 600 a tonne in the current U.S. $ 300), represented a blow to public finances and for the Argentine countryside. Both the public and the Argentine countryside today are worse off in the midst of conflict between them, even in its most negative scenario for both (export duties for the field, and fixed deductions in the case of government). Moreover, in the first months of the year (first quarter and much of the second quarter), the pace of price growth had been accelerated, reaching retail inflation rate to over 30% yoy, which was a significant deterioration in the real exchange rate, largely affecting the domestic industry.

The external and internal uncertainty affecting domestic demand in Argentina (external demand was also affected by the crisis), producing a sharp slowdown in inflation. In this context and the need to recompose the fiscal accounts and the competitive situation of Argentina's economy, the Argentine government and the Central Bank decided that the U.S. currency strengthened against the dollar at a rate much higher than observed so far . With this clearer picture, the question inevitably arises of is how far can the exchange rate in Argentina? Versions published by "The Chronicle? about the evolution of the dollar in Argentina is that, from the government, there is a desire that the dollar hit $ 4.00, following a path of gradual growth. The realization of this possibility would imply an increase of 15.3% in the exchange rate that, depending on the speed at which is carried out, would lead to an interesting profit. In this sense, it is necessary to alert the expectation that the dollar in Argentina could go much beyond $ 3.50 implies a risk to the Argentine financial system as it encourages savers to withdraw their money from the entities bank and use the dollar as safe haven.

Seen this way, the decision to accommodate the type of change to improve the competitiveness of the Argentine peso, damaged one of the values ​​that had been highlighted in relation to the Central Bank intervention in the exchange market as was the rate stability change. Despite the risk involved in the decision to depreciate the exchange rate, the Central Bank has the capacity to monitor its progress, providing a degree of predictability. Anyway, it would be a great contribution to market confidence as to achieve a very slow evolution of the exchange rate so as not to create dangerous incentives for dollar bet. Finally, it is necessary to make special mention of the potential fiscal improvement generated by the depreciation. While a depreciating dollar generates an increase in revenue in pesos product of export taxes and import duties, it also creates a greater need for revenues in peso terms to address compliance with the financial program (in 2009, debt obligations denominated in dollars, more than U.S. $ 8,000 million). This makes the positive impact of exchange rate depreciation is reduced significantly.

It is becoming clear, that in this critical situation being experienced by Argentina's economy, the exchange rate is one of the instruments used by the government to rebuild the health of the economy of Argentina. Can you get the dollar to $ 4 in 2009? Possibly yes, but it will be very conditioned to avoid generating inflationary pressures or for an increase in turbulence in the domestic market that could jeopardize exchange rate stability. Thus, with the cards on the table, and always considering the level of risk involved in any financial stake in Argentina, earning dollar assets attractive as an investment strategy. We will meet again tomorrow, Horacio Pozzo