The downward streak of the exchange rate in Uruguay does not seem to find its floor yet. This Tuesday, the wholesale dollar fell 0.46% in the average of transactions, which stood at $43.45, while the last operation was agreed at $43.40 through Besva. In total, US$ 18.5 million were operated and there was no direct intervention of the monetary authority. Thus, the dollar fell 2.8% in the accumulated figure for the year ($1.25) against the Uruguayan peso. To find an exchange rate at these levels, you have to go back to early October of last year.
On the BROU public board, the dollar was at $42.15 for purchase and $44.55 for sale, 35 hundredths below Monday’s close.
In that context, A delegation from the Union of Exporters of Uruguay (UEU) held a working meeting on Tuesday with the authorities of the Central Bank (BCU).), an instance that they have already maintained on previous occasions to address the issue of competitiveness. One of the issues that was on the table was the exporters are concerned about the trend that the exchange rate has been showing since the beginning of the year.
The head of the UEU’s Economic Advisory, María Laura Rodríguez, told The Observer that the “concern” about the fall in the rate and the “fear” that this trend will continue if investors choose to change their investment portfolios from dollars to pesos, something that could accentuate the current trajectory of the currency, was raised with the Central Bank American in the local square.
Precisely, a issuance of debt in nominal pesos that the Ministry of Economy and Finance (MEF) tendered once again had a strong avidity by investors for the Treasury Note maturing in 2025 (3.5 years term) for $700 million. The demand was almost six times higher than that amount: $3,926 million (about US$90 million). In view of the strong appetite of investors, the MEF made use of the option and accepted up to double the amount offered: $1.4 billion (about US$32 million). The cut-off interest rate for that tender was 8.46% per year, 0.4 points above the 8.10% paid in the tender for the same note last December.
No signs of swallow capitals
After the first meeting of the year of the Monetary Policy Committee (Copom) in January, after which the Central Bank (BCU) resolved to raise the interest rate by 75 basis points, to 6.5%, because he considered it convenient to “accentuate efforts to achieve inflation targets”, some analysts warned of a possible carry trade, a practice used to make money through the interest rate differential between currencies.
The strategy of those short-term swallow capitals (as they are known) It consists of selling dollars in the local exchange market and investing in pesos —through the weekly auctions of monetary regulation bills (LRM) carried out by the BCU to obtain liquidity from the market— with the expectation of obtaining a good return, to later convert the amount back to the original currency. A eventual entry of foreign currency to the local market for speculative purposes can lower the exchange rategenerating a loss of competitiveness.
However, at the end of the first month with the rate hike effect, that effect was not seen. According to the specialized finance media Personal Sherpa, “the holding of non-resident investors in Central Bank LRM stood at 0.26% of the total in circulation at the end of January, a minimum in at least 5 years.” The BCU has been raising the interest rate since last August.
