The original band system, with a nominal adjustment of 1% per month, guaranteed endogenous real appreciation and left little room for external shocks. Moving to bands adjusted for past inflation (t-2) eliminates this distortion and allows for gradual real depreciation as it is not adjusted for trading partner inflation. The recalibration sends two signals: the government recognizes the relevance of the real exchange rate and seeks flexibility in the TC (could there be a change in the level?). The costs? Return a nominal anchor.
The reserve accumulation program formalized a dynamic that was already underway. This is an explicit commitment to purchase up to 5% of the daily volume on the foreign exchange market in addition to block trades. In other words, now the government, bondholders and the IMF are aligned. The purchase of government bonds in the MLC started on November 12th. started. Since then, it has net purchases of $857 million: $280 million in November and $577 million in the first ten wheels of December.
The fund celebrated the recalibration of the exchange rate system and the formalization of the reserve purchase plan. Of course, those timing is no coincidence: the second review of the EFF is approaching, where Argentina will request one Waiverconsidering that the reserve accumulation target is $10.3 billion away from being achieved. In this context, the “remonetization phase” was a necessary signal to unlock the next payout ($1,045 million) and realign the direction of the program.
Between Monday and Wednesday, globals rose 3.3%, pushing curve yields to single digits and country risk to 556 basis points, management’s lowest. The positive relationship between reserve accumulation and reserve compression is empirically confirmed. spreads. The dollar also gained (Spot 0.9% and CCL 2.7%). The most consistent hypothesis is that the market was already discounting a BCRA requiring foreign currency, which necessitated a recalibration of the band cap. Therefore, the move would reflect an adjustment in expectations rather than exchange rate tension.
About The Author
