Despite Central Bank denials, Banco Nación exchange rate shows devaluation

The rate at Argentina’s state-owned bank is AR$400.5 per U.S. dollar, a 6% devaluation compared to the rate of the Central Bank

Argentina is experiencing an economic crisis and devaluation. Argentines look for a refuge in the dollar for their savings.

Just before the end of the last business day before Javier Milei’s inauguration, the official exchange rate was AR$400.5 per U.S. dollar, a 6% devaluation compared to Wednesday. The Central Bank, however, issued a communiqué saying that the official wholesale dollar rate (called the A3500) remained at AR$364.4 per unit.

However, at the time of writing, Banco Nación, a state-owned bank that is the largest in the Argentine banking sector, showed an exchange rate of AR$400.5 on its website.

Thursday was the last business day since Friday is a national holiday in Argentina due to the Catholic celebration of the Immaculate Conception of the Virgin Mary. Milei is taking office on Sunday and is expected to carry out a steep devaluation of the peso. 

“[AR$364.4] is the value that was traded throughout the day all the way up to the closing of the exchange market,” the Central Bank’s press release said. “No exchange rate jump was recorded.”

However, market sources told the Herald that, just before the market closed, operations agreed upon were closer to AR$400 per unit.

In its press release, the Central Bank said it would initiate an investigation to determine whether those transactions were indeed carried out since they would have been “outside exchange regulations.” The Central Bank announced there would be sanctions if that was the case, although come Monday the institution will have new authorities.

On the same day, the financial dollar rates rose between AR$49 and AR$64, and the Central Bank (BCRA, for its Spanish acronym) sold US$119 million. “During the week, the BCRA sold US$377 million and the month’s negative balance reached US$484 million,” analyst and broker Gustavo Quintana posted on X.

The blue-chip swap rate rose 5.8% to AR$1001.3, while the MEP dollar increased 5.3% to AR$986.37. The “blue” informal exchange rate rose AR$35 and closed at AR$990 per U.S. dollar.

A report by consulting firm Ecolatina theorized that the jump has to do with doubts regarding what will happen after the new administration is sworn in. “We believe that this increased nervousness may be due to uncertainty about the feasibility of implementing Milei’s ambitious fiscal-monetary stabilization plan in the face of the enormous economic, political, and social challenges ahead,” the report said.

Net international reserves are negative US$11 billion, a historical low.

What’s coming next

The market seems to be expecting Milei to enact a steep devaluation of the peso after taking office on Sunday. A report by Bull Market, a brokerage firm belonging to La Libertad Avanza member Ramiro Marra’s family, states that future economy minister Luis Caputo will devalue the peso to a value between AR$640 and AR$650 in December and then devalue again in February. 

Future dollar contracts for December ended at $755, with an implied monthly devaluation of 107%. Those values reflect that the market is not pricing an exchange rate unification to close the gap between the official and parallel exchange rates  will take place this month.

The report posits that although Caputo’s plan has “no clear horizon,” dollarization is Milei’s “final destination” and that the future economy minister could be “preparing the ground” for that. 

A report published on Thursday by consulting firm 1816 also poses the question of whether Caputo’s plan is an attempt to stabilize the economy or merely the laying of a foundation to dollarize “The question is not merely academic,” the report says. “It has concrete implications on the peso demand, especially if Caputo’s plan consists of replacing Central Bank’s debt with Treasury debt.”

“A new government is taking office on Sunday, and uncertainty abounds regarding what will happen with the macroeconomy in the upcoming weeks and months.”

— with information from Télam


All Right Reserved.  Buenos Aires Herald