Blue-chip swap rate hit record 408 pesos: what analysts think

Faced with a historic drought and a dire international financial landscape, consulting firms expect more capital controls.

The blue-chip dollar swap rate peaked at a record AR$408 on Friday, its highest nominal value ever, before closing at AR403.57, up by more than 10 pesos (3%) in the last three days of the week.

The surge reflects growing economic tensions in the face of a crippling drought and triple-digit inflation, as well as the market playing catch-up, analysts say.

The blue-chip swap rate, also known as contado con liqui or CCL, is used exclusively in the financial world. It is obtained by investors buying shares and financial instruments in pesos and selling them in dollars on the international market. The “CCL dollar” is the implicit exchange rate in that operation.

Despite the similarity in their names, it is not the same as the informal “blue dollar”.

One report by a respected consultancy firm, viewed by the Herald, said the exchange rate’s erstwhile relative calm “stood out” given the current historical drought, which its analysts expect to slash agricultural production by US$20.3 billion this year and deepen international reserve scarcity.

In this context, the report’s authors predict that the Central Bank will have to tighten capital controls “over the next months”. 

They added that the government may not be able to pay around US$9 billion it owes to importers in 2023.

The government’s debt stems from a June 2022 Central Bank decision making it mandatory for importers to finance their imports for 180 days on the basis that the Central Bank would pay them the dollars within 180 days.

Official sources declined to comment on whether the government would be able to pay that debt. The Central Bank participates in a committee that makes such analyses but does not make its conclusions public.

Since the official market will not be able to provide those dollars, according to the report, more stress is expected on the parallel markets, such as the blue-chip swap rate.

Gross international reserves are US$38 billion, while the net ones are under US$1.5 billion, according to another report by business consulting firm Ecolatina. This year, the Central Bank sold US$1.96 billion.

The parallel dollar surge reflects a belated adjustment for inflation and the grim economic outlook, according to Santiago Manoukian, Ecolatina research lead.

 “The blue-chip swap rate and all the parallel exchange rates were somewhat lagging behind, as the market had been doing carry trade by taking advantage of the high-interest rates,” he said. “But, after the January and February inflation figures were published [6 and 6.6% respectively], the ex-post rate was actually negative.”

Accelerating inflation could further increase pressure on the government to accelerate the crawling peg (the systematic depreciation of the peso against the dollar) and raise interest rates. On Thursday, the Central Bank board hiked the country’s benchmark interest rate by 300 basis points to 78%, the first increase since September.

The lack of dollars could also affect the Fair Prices agreement, which aims to lower inflation by freezing prices or limiting price rises for thousands of basic goods. The government promised it would facilitate access to US dollars at the official rate for imports for participants in the program.

According to Manoukian, the market could be shifting to accommodate the impact of the ongoing drought on US dollar provision. The ongoing international financial crisis and the uncertain outlooks provoked a “flight to quality”, he said.

In a report released this Monday, the International Monetary Fund (IMF) advised against new preferential exchange rates, such as the “soybean dollar” the government used to collect US dollars from farmers. It also forbade the government from intervening in the parallel dollar markets and using US dollars to buy back sovereign debt.

The communiqué from the IMF staff also requested the board to relax the reserve accumulation targets which the country committed to when it signed the Extended Fund Facility in March 2022.

However, according to various consulting firms, it will not be enough in this context.


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