Since what year did the gap with the blue dollar not reach 100%?

This week the exchange gap between the official dollar and the alternative dollars exceeded the magnitude it had had during Kirchnerism. With the vigor given by the hardening of the stocks, this time the gap went further, exceeded 100% and stood at levels similar to those it had touched in the hyperinflation of 1989. However, Argentina today is far from replicating that scenario when prices shot up 3.079% in one year.

With the rebound in blue, which increased 16 pesos in the week and closed at $ 138, the gap ended at 103%. In relation to legal dollars, such as MEP and cash, the gap reached 82%, the same peak that had touched in 2012 with the stocks established by Cristina Kirchner at the start of her second term.

This time the gap escalated because in a context of high circulation of weights Due to the higher monetary issue, the Central Bank further tightened the stocks and placed restrictions on companies and individuals to access alternative dollars. That policy only increased the appetite for blue. Although illegal, it became the only possible dollar in a context of high uncertainty.

Maximum in 31 years

Luciano Cohan, director of Seido Consultora, estimated that the current gap at 103% is touched with the maximum reached in June 89. “At that time the gap was much more volatile. It moved much more. There are some months during hyperinflation in those that appear gaps of this magnitude, but were very circumstantial. ”

“Where persistent gaps in time do appear is in the early 1970s. before Rodrigazo -the economic plan implemented by Peronism in 1975 that led to a sharp devaluation and hyperinflation- the gap remained between 100 and 120%. And once the crisis was unleashed, it reached peaks of 370% “.

Despite the widening gap, Argentina does not have a similar scenario on the horizon today. “In the short term there is no risk of hyperinflation,” says Cohan. “Still, the gap will make itself felt more and more about the economy.”

Harder stocks

“This trap is harder than the previous one. These gaps that are taking place have to do with how disruptive monetary policy is, with a Central Bank that finances the Treasury very aggressively. The risk is that this will end up affecting the Central’s ability to sustain the official exchange rate. If that happens, the risk of entering an accelerated inflation spiral is very high, “concludes the Seido economist.

Widening the gap renews debate over whether the official dollar is behind.

“The level of the exchange rate is a matter that is beginning to worry,” says the consulting firm LCG. “The officer is again falling behind, with the Central Bank controlling depreciation at a more or less fixed daily rate (0.17% average per day in the last 20 days).” And he mentions that the 100% gap “is high in historical terms even for Argentina, which averaged 34% gap in the periods of capital control from 1964 to 2015.”

The widening of the gap generates disruptions in the economy

Gap

For LCG, “Today’s high gap can be seen as a measure of the repressed inflation that the economy is generating. The economic depression may slow down the process of passing prices, but in the medium term the devaluation will fall on the prices of goods and services. The pass through historically reaches 70%. Thus, it is expected that we will live with high inflation for the next few years. ”

Although LCG emphasizes that the level of the dollar counted with liquidity – $ 121- “is not a reference” because it is a shallow market, they emphasize that “if capital controls were released, there are enough pesos to bring the dollar to levels high that parallel exchange rates show today. “

Analysts agree that monetary issue is one of the central factors that drove the gap to cross the 100% barrier.

With the markets closed and the jump in public spending generated by the quarantine, the Central Bank came out to strongly assist the national Treasury. With such magnitude that in the inter-annual measurement the circulating money grows at a rate of 70%.

For Consultatio, “the level of real exchange rate is not at a worrying level, and we expect depreciation, from now on, to accompany inflation. However, the main risk that arises comes from the extremely high level of the gap. ”

For the SBS group “economic expectations continue to deteriorate due to the huge monetary issue to finance the Treasury and that is why tensions between monetary policy and exchange rate policy grow.”

At the same time, the gap discourages exports. This makes the Central become the main provider of dollars in the market. Consultatio notes that in April the monetary authority had to sell $ 500 million to the private sector, while the average purchase for that month, when the liquidation of the harvest is concentrated, is US $ 950 million.

“The exchange rate photo doesn’t look that bad, but the film is something else,” says Consultatio. “We think that in the second half of the year the rate of depreciation of the exchange rate could accelerate.” In this line, the consultant adjusted its projection of the official dollar for the end of the year from $ 86 to $ 95. With this depreciation, they expect the gap to end the year at 60% levels “underpinned by the high monetization of the economy and low real interest rates.”

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