Economists have a hard time understanding fluctuationWednesday, January 22, 2014
Official dollar soars 9 cents before dropping in volatile day
The official dollar exchange rate had a volatile day yesterday shooting up as much as 9 cents early in the day before the Central Bank got involved and pushed it down, and it ended the day with a 5-cent increase at 6.89 pesos.
Economists were scratching their heads yesterday over why the Central Bank took so long to push down the rate that has been regularly depreciating by one or two cents almost every day this year.
This type of sharp fluctuation is normally associated with the so-called “blue” rate, which jumped 21 cents to 11.86 pesos yesterday but not for the official peso that is usually tightly controlled.
The government has taken pains in the past few months since November to carefully regulate a moderate but constant depreciation. However, yesterday the monetary controls seemed to have gone awry since the Central Bank only intervened after 12pm, when it sold US$120 million.
“What happened was very strange, there was no reason for it to jump by so much,” remarked the director of the Quantum Finanzas economic consultancy Daniel Marx. Marx, a former Central Bank director and finance secretary, told the Herald that some sources he consulted believed a mistake must have been made.
“This type of fluctuation is very rare, it would make sense if this was a floating exchange rate, but it isn’t,” Marx said.
There are generally two ways the Central Bank reigns in this type of sharp depreciation, one is by increasing the interest rate so demand for dollars decreases and the other is by directly selling dollars to the market — which happened in this case.
But not all economists found the steep hike strange, adhering to line that the amount the currency had temporarily depreciated wasn’t as important as where it ended.
“The volatility of the currency fluctuations doesn’t really matter, it has to do with the speculators,” Estanislao Malic, an economist for the Centre of Financial Studies for the Development of Argentina (Cefidar), told the Herald. He minimized the increase by also arguing that it wasn’t very high.
“If you look at the big picture, this was only a 1.3-percentage point jump,” when calculating it against the 6.84 peso rate it was at the beginning of the day, Malic added.
Since the beginning of January the official peso has already depreciated 15.27 percent.
The so-called “blue” dollar, which is another potential problem for the government if the gap with the official rate becomes too wide, has also followed the official rate depreciation but the very nature of a small market means that sharp fluctuations are common.
The illegal rate closed at 11.86 pesos yesterday, 9 cents shy of the record 11.95 pesos reached last week. Some analysts have argued that if the official rate becomes highly volatile it might even further increase demand for the illegal dollar because people are anxious to exchange a currency that is depreciating exponentially faster for dollars no matter what the price.
However, Andrés Asiain, who is the director of the Center of Economic and Social Studies of Scalabrini Ortiz (CESO) denied this was the case.
“This increase demonstrates that the depreciation has accelerated in the past few months, but it won’t affect the blue market,” said Asiain.