20181205-法国巴黎银行-Argentina__Non-intervention_zone_changes_9页_408kb

Argentina: Non-Intervention Zone Changes Summary

Core Content

On 05 December 2018, Banco Central de la República Argentina (BCRA) announced changes to its foreign exchange (FX) intervention program, effective from 1 January 2019. The key changes include:

• Reduction in implied ARS depreciation rate: The monthly depreciation rate of the Argentine Peso (ARS) against the US Dollar (USD) will be reduced from 3% to 2%.
• Adjustment of non-intervention zone: The BCRA will adjust the non-intervention zone for USDARS exchange rates. If the rate falls below this zone, the central bank will increase its dollar purchases, up to USD50 million per day in December. Monthly purchases will not exceed 2% (~USD700 million) of the monetary base goal.
• If USDARS is above the non-intervention zone, the BCRA will reduce the monetary base goal by selling USD, with no cap on the amount of USD sold.

Key Implications

• The new monetary system aims to stabilize the currency, but the monetary base remains a limited target.
• The BCRA has shifted from an exogenous interest rate floor (Leliq's 60% rate) to an endogenous one, reflecting lower inflation expectations.
• The strategy of the analysts includes:
  • Entering a long USDARS 1m forward strategy, which has already gained 3.5%.
  • Being long protection via 5y CDS, indicating concern over potential currency risks.

Market Outlook

• The analysts believe there is more upside potential for the USDARS 1m forward strategy due to the new policy.
• Concerns are raised about the unsustainable expansion of M3 and the quasi-fiscal deficit resulting from Leliqs growth.
• The non-intervention zone is expected to influence FX rates in the coming months, with the lower band potentially leading to increased central bank intervention.

Table Summary (Table 1)

Main Points

• Monetary Base Target: The monetary base is seen as a limited target, and the BCRA's intervention strategy will be adjusted accordingly.
• Leliqs and Quasi-Fiscal Deficit: The rapid growth of Leliqs is a concern, as it may lead to a quasi-fiscal deficit and unsustainable M3 expansion.
• FX Strategy: A long USDARS 1m forward strategy has been initiated, showing positive returns and potential for further gains.
• CDS Protection: The analysts are long protection via 5y CDS, reflecting cautious outlook on currency risk.

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