CEPO is lifted

[antipodean]

Luis Caputo anunció que el lunes se termina el cepo cambiario: el dólar oficial flotará entre $1.000 y $1.400

El ministro de Economía lo informó en conferencia de prensa luego de que el Banco Central anticipara la fase 3 del programa económico. También finaliza el dólar blend y habrá un desembolso de USD 15.000 millones por parte del FMI en 2025

www.infobae.com

The government/ BCRA have announced that they will now imminently remove the CEPO (capital control affecting exchange rates and free movement of money to and from Argentina and the world). The exchange rate will "float" between 1000-1400 (albeit within controlled parameters). In theory this should mean the convergence of the various exchange rates (Blue, MEP, CCL etc) with the official. This has apparently been made possible with the recent IMF loan. News still missing the effective date. (EDIT - Applicable from Monday)

As per the last time this happened in 2017-19, how long this will last is anyone's guess, but those with assets inside Argentina or pesos to spend should soon make the most of it. Any company that owns shares or operations in Argentina will now be able to freely repatriate their profits/ assets, which in theory should attract FDI. Those with money outside should be able to soon spend using their foreign cards without any significant penalty or benefit. This should have a positive impact on prices since vendors/ importers theoretically will no longer need to speculate on costs. Expats can waive goodbye to privileges like the blue or the MEP as what they pay will be what an Argentine pays.

 

[MarshallE]

Luis Caputo anunció que el lunes se termina el cepo cambiario: el dólar oficial flotará entre $1.000 y $1.400

El ministro de Economía lo informó en conferencia de prensa luego de que el Banco Central anticipara la fase 3 del programa económico. También finaliza el dólar blend y habrá un desembolso de USD 15.000 millones por parte del FMI en 2025

www.infobae.com

The government/ BCRA have announced that they will now imminently remove the CEPO (capital control affecting exchange rates and free movement of money to and from Argentina and the world). The exchange rate will "float" between 1000-1400 (albeit within controlled parameters). In theory this should mean the convergence of the various exchange rates (Blue, MEP, CCL etc) with the official. This has apparently been made possible with the recent IMF loan. News still missing the effective date. (EDIT - Applicable from Monday)

As per the last time this happened in 2017-19, how long this will last is anyone's guess, but those with assets inside Argentina or pesos to spend should soon make the most of it. Any company that owns shares or operations in Argentina will now be able to freely repatriate their profits/ assets, which in theory should attract FDI. Those with money outside should be able to soon spend using their foreign cards without any significant penalty or benefit. This should have a positive impact on prices since vendors/ importers theoretically will no longer need to speculate on costs. Expats can waive goodbye to privileges like the blue or the MEP as what they pay will be what an Argentine pays.

Surprised this is coming before the elections. Milei has done it, he's going all in. I don't think there's another second chance if this fails

 

[sergio]

How can it be a floating rate if it can't exceed 1,400? 'Controlled paramaters"

 

[cortazar]

How can it be a floating rate if it can't exceed 1,400? 'Controlled paramaters"

As I understand, they will use the FMI money to sell dollars for pesos to "defend" the 1400 rate.


I'm still hedging to see if they actually let it float, but if they do it could be a good longterm step towards removing the distortions in the economy. The cynic in me doubts it'll happen before the elections, but I'll be the first to admit I'm wrong.

 

[darksider415]

How can it be a floating rate if it can't exceed 1,400? 'Controlled paramaters"

It's a dirty float, similar to what Japan does IIRC. Basically, it's allowed to float within a range, but they'll put the brakes on if it gets outside that range (see when the circuit breaker was pulled on the JPY last year)

 

[MarshallE]

As I understand, they will use the FMI money to sell dollars for pesos to "defend" the 1400 rate.


I'm still hedging to see if they actually let it float, but if they do it could be a good longterm step towards removing the distortions in the economy. The cynic in me doubts it'll happen before the elections, but I'll be the first to admit I'm wrong.

The stipulation is that the range where they defend the exchange rate by either selling dollars or selling pesos will increase by 1% monthly. So in month 1 they'd sell dollars to keep the peso below 1400, month 2 they'd sell to keep it below 1414, then 1428 and so on each month. Until eventually the range is large enough that they won't have to intervene and the exchange rate is solely determined by the market. That remains to be seen, but so far so good. Seems Mileis personal relationship with Trump is paying off, as Argentina got an even better deal than what the rumors were suggesting.

 

[LuckyLuke]

Every currency peg has failed, dirty, regulated, fixed, you name it. I'm very curious, with the limits removed on expatriating profits, just what companies will do and how much of that IMF money will go around.

 

[IamWaldo]

The stipulation is that the range where they defend the exchange rate by either selling dollars or selling pesos will increase by 1% monthly. So in month 1 they'd sell dollars to keep the peso below 1400, month 2 they'd sell to keep it below 1414, then 1428 and so on each month. Until eventually the range is large enough that they won't have to intervene and the exchange rate is solely determined by the market. That remains to be seen, but so far so good. Seems Mileis personal relationship with Trump is paying off, as Argentina got an even better deal than what the rumors were suggesting.

So if we follow this format EOY it should be around ~ 1500

 

[LuckyLuke]

I'm struggling to understand the oscillations here. We don't have parity yet between rates, but we have supposed opportunity of parity because of the defense at 1400. This reads a lot like...."Peso finally free to depreciate 27% to 1400 (but it's the market fault, not mine)".

We have conflicting forces here:

Action: IMF injects 15 billion dollars into BCRA
Result: Dollar pressure down (parity below 1400)

Action: Companies holding pesos purchase dollars to expatriate them
Result: Dollar pressure up (BCRA sells dollars), Peso pressure down

Action: Companies holding dollars in Argentine USD accounts expatriate them
Results: Dollar pressure up (BCRA sells dollars)

Action: Agricultural sector hoarding dollars abroad can now import them at parity (assuming office has depreciated to parity)
Results: ?? Hard to say if they will

Milei is then expecting this one:

Action: Companies eager to set up business here take advantage of RIGI
Results: Influx of dollars (dollar pressure down) to purchase pesos (peso pressure down)

 

[Stephano]

I'm struggling to understand the oscillations here. We don't have parity yet between rates, but we have supposed opportunity of parity because of the defense at 1400. This reads a lot like...."Peso finally free to depreciate 27% to 1400 (but it's the market fault, not mine)".

We have conflicting forces here:

Action: IMF injects 15 billion dollars into BCRA
Result: Dollar pressure down (parity below 1400)

Action: Companies holding pesos purchase dollars to expatriate them
Result: Dollar pressure up (BCRA sells dollars), Peso pressure down

Action: Companies holding dollars in Argentine USD accounts expatriate them
Results: Dollar pressure up (BCRA sells dollars)

Action: Agricultural sector hoarding dollars abroad can now import them at parity (assuming office has depreciated to parity)
Results: ?? Hard to say if they will

Milei is then expecting this one:

Action: Companies eager to set up business here take advantage of RIGI
Results: Influx of dollars (dollar pressure down) to purchase pesos (peso pressure down)

Thanks Lucky, very good analysis. So, given that there are so many forces at play it can go either way, so we'll just have to wait and see whether the dollar will go back to 1000 (or thereabout), or linger at the 1400 mark it has been approaching in the past few weeks.