The data of inflation of March that will be known this Wednesday, April 13, and that will be around 5.4 and 6.3%, according to estimates by private consultants, added to the acceleration that is showing in April the rate of adjustment of the official exchange rate (crawling peg) consolidated in the market the conviction that an “imminent” new rise in interest rates.
Besides Given the speed that the crawling peg took this month, some analysts estimate that the new adjustment that the Central Bank (BCRA) will make in the monetary policy rate could be more aggressive than the three previous increases implemented by the monetary entity so far this year.
And it is that they argue that for the first time so far this year the annual devaluation rate of the official dollar exceeds the Badlar rate in pesos (the one paid by banks for large fixed-term deposits), with which if that persists it could discourage the liquidation of foreign exchange from the gross harvest.
Other analysts dismiss this possibility and foresee an update of the rates of a magnitude similar to the previous ones because at the time of the definition the BCRA also takes into account the costs of the measure since it affects its quasi-fiscal deficit by increasing the payment of interest for Leliqs and may affect economic activity by making credit more expensive.
Beyond the percentage increase, everyone agrees that after knowing the data of march inflation the BCRA will adjust the interest rate given that in the agreement with the IMF it promised to bring it to a positive real level.
The rate of adjustment of the official exchange rate accelerated from 3.3% in March to 4% monthly so far in April
Why did the rise in the official dollar accelerate?
In January, inflation was 3.9%, while the official exchange rate climbed 2.24%; in February, the cost of living was 4.7%, while the wholesale dollar increased 2.31%, and in March the rate of exchange rate adjustment was 3.3% compared to a rise in prices that some calculate closer or even higher than 6%.
In this context, So far in April, the BCRA validated a devaluation rate of around 4% per month.
The wholesale dollar closed on Friday, April 8, at $112.16, which implies a weekly rise of $1.04 “by far the highest weekly correction since the week ending October 2, 2020,” said operator Gustavo Quintana, of Pr Changes.
About, Emiliano Anselmi, PPI analyst, evaluated iProfesional that The acceleration of the rate of devaluation responds to the limited room for maneuver of the BCRA to accumulate foreign currency in the single free exchange market (MULC)
“The BCRA is buying few currencies, it needs to buy more, it has the goal with the IMF of accumulating net international reserves -this year they must increase by US$5.8 billion- and the most direct and easiest way to achieve it is to devalue,” he said, although he noted that “this must be accompanied by the rise in rates.”
In Facimex Values They also highlighted that “the rate of devaluation accelerated significantly” after “verifying an adjusted compliance with the net reserves goal for the first quarter”.
For its part, Agustin Berasateguian economist at ACM, argued that “the higher rate of devaluation should be read as a measure to maintain the multilateral real exchange rate that is part of the agreement with the IMF”.
The new program with the IMF stipulates that the real exchange rate cannot fall below the average values of December 2021.
In this sense, analysts from the consulting firm 1816 highlighted that “with the start of April, the BCRA began to devalue at a monthly rate of 4%, after several weeks of doing so at 3% so as not to delay the official dollar so much against inflation.”
Alejandro Giacoiaan economist at EconViews agreed that “The acceleration of the crawling peg is necessary so that the real exchange rate does not lag behind the rise in inflation”.
The devaluation rate exceeds that of pesos, so there is a risk of discouraging the liquidation of exporters, according to analysts
What risks are there with a higher dollar?
The analysts of the consultant 1816 warn that the strategy of accelerating the rate of adjustment of the official exchange rate “has two great risks: generating a very high floor for future monthly inflation, and disincentivizing too much the liquidation of foreign currency given that the rate of Current Account Advances is today in the area of 3.3% per month”
And they argued that “if taking pesos is very cheap in relative terms, it makes no sense for the exporter to sell soybeans that ‘run’ at 4% per month.”
of the same look, Nery Persichiniof GMA Capital, maintained that “a risk that the BCRA faces in this context is that an acceleration of the crawling peg towards the 60% annualized zone feeds back the inflationary dynamics, which until now did not have the fuel of faster exchange rate movements “.
“A second inconvenience appears on the side of the interest rate lag: business financing lines (advances in checking accounts) have a monthly cost that is around 3.3% per month or 48% annualized, values that are not only negative in real terms but far from the new speed of the dollar,” he stressed.
The analyst warned that “this dissociation could discourage the sale of grains, because in pesos soybeans yield more than the cost of financing, at a time when the BCRA has the most urgency to buy foreign currency in the MULC”.
Is the fourth rate hike imminent?
Anselmi asserted that “The rate in pesos has to be above that of the crawling peg so that the exchange market does not lock up and the exporters continue liquidating and the importers do not advance purchases”.
In this sense, the analyst stressed that “the rate in Badlar pesos, which is what the large depositors look at, the soybean, is at 42% per year, so for the first time it is below the evolution of the official exchange rate” .
Given this situation, Anselmi believes that it is reasonable that “we are at the gates of a new rise in interest rates” and “it will probably be after next Wednesday’s inflation data.”
With the same diagnosis, consultant 1816 support that given the importance of the relationship between the interest rate and devaluation. the acceleration of the crawling peg recorded so far in April suggests that “a new rise in the monetary policy rate is inevitable”.
For Sebastián Menescaldidirector of Eco Go, also judged that “it is inevitable, some sign of toughness has to be given by the BCRA in the face of higher inflation”.
In turn, the analyst Gustavo Berbelieves that “the acceleration of the crawling-peg would be the prelude to a new rise in the rate” by the BCRA in search “of being able to maintain the climate of exchange calm and the greater appetite for placements in pesos, which is crucial in the face of local financing needs.
In EconViews consider that “A hike is almost guaranteed because with inflation starting at 6 current rates are almost as negative as last year.”
For analysts, a new rate hike in April is “inevitable” in the face of higher inflation and devaluation
Is the biggest rate hike coming so far this year?
After remaining flat at 38% since November 2020, the monetary policy rate during 2022 has already been adjusted three times. The last one was on March 22, when the BCRA decided to raise the annual nominal interest rate of the 28-day Liquidity Letters (Leliq) by 200 basis points, going from 42.5% to 44.5%.
In turn, the entity raised the minimum guaranteed yield of fixed terms and set it at 43.5% per year for 30-day placements, which represents a yield of 53.3% of the effective annual rate (TEA) to encourage the savings in pesos.
For the rest of the private sector deposits, the minimum guaranteed rate was established at 41.5%, which represents an Annual Effective Rate of 50.4%.
Anselmi He stated that “we do not see it as sustainable for the BCRA to maintain the negative exchange rate differential, rising at a faster rate than the rate in pesos.”
In this framework, the analyst said that “We believe that the BCRA is going to raise the rate by 300 basic points to at least return to neutrality, and that this differential is zero”.
in tune, Adrian Yard Bullerchief economist of Facimex Valores, said that “we have revised upwards our inflation projection to 5.5%” for March and “we expect a new rate hike of 300 basis points by the BCRA”
If an adjustment in the monetary policy rate of 300 basic points materializes, it would be the highest of the year after one of 200 points in January, 250 points in February and 200 points in March.
For its part, Persichini reasoned that “due to the acceleration of inflation, the deterioration of expectations, and the greater pace of the crawling peg, the rate hike should be more aggressive than in the past”.
On the other hand, for Menescaldi, the BCRA could raise the rate by 250 basic points, while Giacoia and Ber predict that the rise “would be around 200 points”.
For his part, the economist Fernando Marull opined: “I don’t see a BCRA raising 300 basis pointsif it makes any movement next week it will be gradualism, at most 100 basis points” and argued that “the interest rate has to cover the next inflation, which should be lower than average levels of 5.5% or 6%”.