Argentina’s central bank has almost run out of room to intervene in currency futures, the main instrument it is using to prop up the falling peso ahead of Sunday’s decisive presidential election.Thank you for reading this post, don't forget to subscribe!
The country’s monetary authority sharply increased sales of peso futures contracts on Rofex, the largest derivatives market, to supply investors seeking a hedge against devaluation after the election, people with direct knowledge of the matter said. The central bank, which is almost the sole seller in Rofex, saw its “sold” position exceed US$4 billion on Thursday, according to the people, who spoke on condition of anonymity discussing private information.
The position limit established by Rofex is US$5 billion. As it approaches that limit, the bank is being forced to “move” to the secondary futures market, the Mercado Abierto Electronico (MAE), which is owned by the country’s major private banks. The central bank increased sales of peso futures there this week by 50 percent to $1.3 billion, one of the people said. This leaves the monetary authority with approximately US$2.7 billion to intervene in the MAE.
A Central Bank spokesman declined to comment.
Anger is spreading among investors ahead of Sunday’s presidential election, with almost every scenario pointing to further losses. Confidence in the government and the banking system is in the tank. The peso has lost more than 92 percent of its value since 2019, after years of running budget deficits financed by money printing.
Futures indicate an exchange rate of 372.50 pesos per US dollar by the end of the month, close to the current official rate of 350, and 422.50 for the end of November. People said that October and November are the places where the Central Bank shows the greatest intervention. The market saw a sudden decline in late December after the new government took office and reached 825 pesos, which would mean a 58 percent devaluation for the peso.
Argentina devalued the currency 18 percent the day after primary voting in August – seen as a barometer for this weekend’s election. While the government has said it will keep the currency pegged until November 15, there is widespread public speculation of an imminent devaluation as the peso continues to be sold off in the parallel market, having recently topped $1,000 per dollar.
By Ignacio Oliveira Doll, Bloomberg