Price of the dollar, cheap?: Economists see exchange delay

The price of the dollar concentrates the attention of Argentines, and according to various economists consulted by iProfesional, the exchange delay is already 24% from the end of 2020 to date.

A delay in the price that worries the experts and that gets worse and worse, because monthly inflation is very high (exceeds 5%), while currency devaluation is proceeding at a much lower rate.

In fact, analysts estimate that the current appreciation of the peso is the highest since 2018.

Something that began to become evident from 2021when the US currency was used by the ruling party as an anti-inflationary “anchor”, so that there are no financial noises during the legislative electoral period.

And that deepened this year due to the greater increase in prices in the economy, while the dollar advances from behind.

For economists, the exchange delay is already 24% from the end of 2020 to date.

However, for the experts consulted by this means, it is necessary to analyze with what variables is the dollar contrasted to determine what is the precise level of exchange delay that its value in pesos is having.

Therefore, several economists agree that it should be taken into account as a measure of reference to the multilateral real exchange ratewhich is the comparison between the peso and the rest of the currencies with which Argentina has international trade.

Delay in the price of the dollar, according to economists

For Ricardo Delgadoeconomist and director of Analytica, “it is observed that in 2022 the multilateral real exchange rate is 10% appreciated compared to last year’s average. . . . It’s a clear data,” he tells iProfessional.

In this vein, the opinion of Sebastian Menescaldieconomist and associate director of Eco Go: “The multilateral real exchange rate relocated to the same levels of the initial devaluation of the Government of Mauricio Macri. In this way, it lost the exchange rate advantage arising from the exchange rate crises of 2018 and 2019 to date,” he tells this medium.

Specifically, this expert mentions that, throughout the current year, the appreciation of the currency “is not significant (2.6%), due to the restart of the crawling peg (slow devaluation), the appreciation of the Brazilian real and the highest inflation in the rest of the world“.

Though if compared to the end of 2020“product of the use of the exchange rate as an electoral anchor, the appreciation already reaches 24%this being the level of greatest appreciation since May 2018″alert Menescaldi iProfessional.

In the first 5 months of the year, inflation accumulates around 28%, while the official dollar rises

In the first 5 months of the year, inflation accumulates around 28%, while the official dollar rises “barely” 17%.

As he clarifies, this value, if compared with historical average data, is 16.9% more appreciated, which could indicate that “the exchange rate would be overdue and our deteriorated competitiveness.

Also in this agrees Isaiah Marinian economist at Econviews, who maintains: “It is true that there is a considerable foreign exchange delay: the multilateral real exchange rate, that is, the exchange rate measured in terms of goods that we trade with other countries, averaged for May was the lowest since May 2018.”

Cheaper dollar and imbalances

The testimonies of the economists make it clear that the exchange delay is already notorious and that it is worrying them, above all, because the rise in prices is accelerated, while the advance in the value of the US bill is behind.

Specifically, the inflation in the first 5 months of the year is an accumulated of around 28% while the official dollar advances in the same period by 17%.

Added to this is the low amount of net reserves available to the Central Bank, with the additional concern that purchases of foreign exchange by the monetary authority are scarce (barely US$784 million in May), in the middle of the high liquidation period of the thick harvest of the field.

Fact that generates the Government does not comply with the agreement made with the IMF in terms of the level of reserves that it was going to add in recent months.

It is process has short legs. With increasingly scarce reserves, the BCRA increasingly tightened the exchange rate for savers, tourism, the purchase of services and, finally, for importers. Hitting consumption and economic activity”, he tells iProfesional Eugenio MariChief Economist of the Fundación Libertad y Progreso.

The Government was unable to add a significant amount of dollars to the reserves in full liquidation of the field, and that will complicate the power of exchange control in the second semester.

The Government could not add a significant amount of dollars in full liquidation of the field: that will put pressure on the exchange rate.

On the side of Marini’s opinion, he maintains that in order to measure backwardness, “the question” to elucidate is regarding at what level is this gap.

And he sentences: “If we take as a reference the average level of December 2021, objective in the IMF agreement, the exchange rate today should increase by 4.5%. But less than two weeks ago, 7.9% was needed, which is explained by the fact that the Brazilian real, the currency of our main trading partner, appreciated again in recent days.”

What can happen to the dollar in the coming months?

Now, the challenge is to know what will happen in the coming months with the dollar, and in the face of this situation the economists consulted by iProfessional have a clear opinion.

“Without a credible economic plan in sight, the outcome of this process will be with a devaluation of the official exchange rate. IMF disbursements have given air to postpone it, but if the current dynamic continues and the real exchange rate continues to lag artificially, it is expected that before the end of the year there will be a jump in the exchange rate”, resume Mary.

By the side of Alfredo Romanoeconomist and author of the book “Dolarizing Argentina”, due to the limited capacity of the Central Bank to buy dollars in times of gross settlements, “we potentially see a exchange correction of parallel dollars in the coming months. Especially in the second half, where the BCRA will begin to suffer the consequences of the meager purchases of the previous months.”

And complet: “If we take inflation at 76% per year, the dollar should at least run at 50% so as not to prolong the exchange delay. Therefore, the chances of seeing a dollar over year-end $300 or more should be consistent with the monetary and fiscal policy being carried out by the Government”.

Economists are projecting a jump in the price of the dollar for the second half of the year.

Economists are projecting a jump in the price of the dollar for the second half of the year.

This means that a parallel and financial dollar at $300 means a 42% devaluation from now until the end of the year.

“To reach the average level of 2021, the exchange rate today would have to increase by 16.5%, or 23.4% to reach the long-term average since 1997,” summarizes Marini.

And he concludes: “What is clear is that with inflation at a cruising speed of 5% to 6% per month, the Central will have to accelerate the rate of depreciation or soon the expectations of an exchange jump”.

In this regard, Delgado notes that, in this context, “it is very difficult to fulfill the commitment assumed before the IMF to adjust the real exchange rate to the inflation rate. Obviously, international prices and international inflation help, but clearly is below and that is part of the problems that keep piling up.