The black-market dollar has been falling slowly but steadily in the last three weeks, moving from 13.75 pesos on January 28 to 13.19 pesos on the last working day, narrowing its gap with the official exchange rate to almost 50 percent.
In the past, similar weeks-long drops proved to be an anomaly in a market where the longer-term trend was that of a rising dollar. But that hasn’t been the case since September, when the black-market dollar was five cents short of reaching the 16-peso mark.
After that, the peso’s value in the currency black market alternated periods of recovery with others of stability, as the Central Bank kept a tighter monetary policy and ensured there would be no run against the country’s reserves thanks to a combination of Chinese loans and import restrictions.
This, coupled with the Central Bank’s New Year decision to start allowing micro-devaluations of the official exchange rate has led experts to wonder if times have changed in Argentina’s currency markets.
“The fall of the black-market dollar is not so big, but what I see now is stability,” Juan Pablo Ronderos, an economist from Abeceb’s consultancy company told the Herald.
“One reason is that the government managed to dispell fears of dollar scarcity by sitting on its dollar reserves, as we saw last week with the restrictions on importers, even if that meant a negative effect on economic activity levels. Another reason is the dollar-for-savings mechanism, which takes some pressure off the informal market,” Rondero said.
In his view, the Kirchner administration is prioritizing the continued feeling of financial stability over other factors, but it’s not clear if that policy will be maintained throughout the year.
Orlando Ferreres, head of the Ferreres & Asociados consultancy agency, adds some other factors into the equation.
“The money supply is now growing at a pace of 25 to 30 percent a year, not 40 as it did beforehand. The government has been keeping a short leash on monetary expansion, absorbing circulating pesos with notes from the Treasury and the Central Bank,” Ferreres said.
He also thinks the current scenario is partly caused by companies selling some of the dollar reserves they had in order to pay their expenses, as less pesos enter their coffers due to the reduced activity.
Although the consultant doesn’t think the black-market dollar could keep on falling, he does see pressure for the official exchange rate to rise.
“Regional economies are finding it hard to survive with the current exchange rate, provincial producers that sell wine, nuts and so on are finding it hard to compete, so they will be a factor pushing for a cheaper peso,” Ferreres told the Herald.
This week, economic consultant Miguel Bein also said he saw the official dollar rate at around ten pesos by the end of the year, up “16 or 17 percent” for the period.
That would still be below today’s inflation rates, but it could mean that state regulators see the frozen exchange-rate policy as having reached its limit.
A POSSIBLE CONVERGENCE?
Market actors and financial experts are wondering if the narrowing gap could be the build-up to a unification of the country’s exchange rates in 2016, as most candidates are seen as likely to reform the current monetary policies.
The popularity of dollar-linked bonds, whose value is tied to that of the official exchange-rate, seems to point in this direction, as does the promise of candidates such as Sergio Massa to lift currency restrictions and the words by opposition PRO party’s economists saying the current exchange rate is not sustainable.
“We think it’s likely that at some point in 2016 the exchange restrictions will be lifted,” Elypsis’ chief economist Luciano Cohan told the Herald. That will push the black-market dollar back, as “markets will anticipate the resulting elimination of the gap,” Cohan says.
As a result of this, by the end of the year Elypsis sees the official exchange rate at 10.30 pesos to the dollar, and the gap with the black market dollar at only 20 percent, with dollars even cheaper than today, trading at 12.50 to 13 pesos.
If enough market players start believing that too and the Central Bank goes along, the dollar gap could shrink soon.
