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Central low rates and purchase of dollars to keep the exchange rate – 31.3.2019

The central bank's monetary policy committee has decided to lift it from today $ 75 million the peak of a foreign currency purchase that could buy for one day whenever the wholesale dollar market price under the floor of an area without intervention, This limit applies to February and may or may not change in March.

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During January it was set above 50 million. The announcement is taking place simultaneously with the acceleration of the rate of decline in the monetary policy rate set yesterday 53.68%. This rate was 59.4% at the end of the year and reached 74% at the beginning of the currency program last October.

In the unlikely event that the dollar exceeds the upper boundary of the exchange rate – between $ 49.09 and $ 49.97 in February – BCRA can offer up to $ 150 million a day.

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The initial limit on purchases and sales, agreed with the IMF, was $ 150 million a day, but in order to avoid compromising the monetary base target, it was decided to limit purchases in January to only $ 50 million a day.

Similarly, it will have dollars month limit in FebruaryIt must not exceed the equivalent of 3% of the currency base observed at the beginning of February, which is 1,372 billion pesos. As a floor of the band this month will be among them $ 37.88 and $ 38.61, it is estimated that Central will be able to buy $ 1,100 millionIn January, foreign currency purchases amounted to $ 560 million.

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With the decision announced yesterday, the central center gives a clear signal that it will strive to maintain the real exchange rate, although it is not his priority that the debate should not raise the question whether the issue is again a problem "Exchange Arrears".

Discussion about this assumed backwardness of the real exchange rate – despite the fact that in 2018 the peso hit 50% devaluation– Strengths, because this year's dollar price was slightly lower than expected inflation around 2.5%.

The devaluation slope is set at 2% per month during the first quarter of 2019. As inflation is expected at 2.5% for each month of this quarter, it is easy to note that the dollar will continue inflation. At least until the pre-election campaign has a temperature. Everyone expects a greater demand to protect the foreign currency from any election result.

The business sector also records its complaints in two bands: according to the interest rate level, excluding the dollar (see separately).

The specific thing is that the largest currency purchase takes place in a favorable local and global context. The global decision of the United States Federal Reserve not to raise interest rates – probably in 2019 – has brought peace to emerging markets. At the local level, demand for pesos increased and enabled the BCRA to accelerate the drop in interest rates that apply to liquidity letters.

In its press release, the central bank explained that "If the exchange rate is lower than the non-intervention zone, the cash base target will increase with purchases of dollars made through bids from the BCRA, which will cost up to $ 75 million per day. these bids may not exceed 3% of the target value since February 1, $ 1,372 billion. "

However, Central noted that "the central bank's primary goal is to reduce inflation, which remains very high. The Monetary Policy Committee believes that a tight control of monetary aggregates will lead to this, as the decisions taken in February are in line with it.

He also announced that he had crossed the base currency target. The monthly average BM in January was $ 1.345 billion, $ 12.141 million lower than the target, and 0.6% higher than the December average.

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