Blue and MEP dollars fall below AR$1,000

The gap between the parallel and official exchange rates has narrowed, making Argentina more expensive in dollar terms

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Argentina’s “blue dollar” parallel exchange rate continued its downward trend on Thursday, closing at AR$985 — its lowest nominal value since the government announced a 54% devaluation in December. The MEP rate is also below the AR$1,000 mark, closing Thursday at AR$996.

The MEP dollar is the exchange rate implicit when investors buy shares or bonds in pesos and sell them in dollars in the local market. 

The lower blue rate reflects the fact that people with savings in dollars are selling them because of a cost of living crisis brought about by soaring inflation, according to Gustavo Quintana, an analyst and broker for PR Corredores de Cambio. “There are no pesos, there is a supply of dollars — those who were hoarding dollars are selling them to pay expenses.”

Inflation was 20.6% for the month of January and 254% inter-annually. Poverty in Argentina hit 57% in January, the highest figure in 20 years, according to a new report by the Argentine Catholic University’s Social Debt Observatory.

“The government carried out a devaluation that hurt everyone because it didn’t have a real effect due to the rapid readjustment of internal prices,” said Martín Burgos, an economist at the Latin American Faculty of Social Sciences (FLACSO). “Salaries are increasing in dollar terms, but prices are increasing in dollars at a higher rate of 20%.”

 “If you have had the same or a lower exchange rate since December, that means you had a 20%-average inflation rate in dollars,” he said, adding that a price stabilization plan was key.

While the blue rate has fallen, the official dollar exchange rate has risen, to 865 at the time of writing. This means the currency exchange gap between official and parallel rates (known as the brecha in Spanish) has shrunk, and the country is therefore becoming more expensive in dollar terms.

“We are currently expensive in dollars because local prices aren’t going down yet, they do not respond to the same reality that the financial market responds to,” Quintana said. “We will have to wait a couple of months, to see if that settles, if inflation eases, and if exchange rates return to a different level, but that is the reality right now.”

Both Quintana and Burgos regard the lower brecha as temporary and expect it to widen at the end of March, when the coarse harvest begins. A stronger harvest is expected than last year, when soybeans and other key crops were devastated by drought.

“If the cepo [currency controls] is not removed, the gap should reopen in two or three months when the liquidation of exports takes place, because that is why the gap is narrowing, since part of the exports is going through the financial markets,” said Burgos.
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