FX intervention does make a difference

On the monetary front, the contractive bias of the program was first reinforced by freezing the floor and ceiling of the non-intervention zone (NIZ) at the current levels until the end of the year and by preventing the purchase of reserves until June 30th. However, since end-April the Central Bank is allowed intervene in the FX market in order to mitigate excessive exchange rate volatility even within the non-intervention zone. Concretely, the Central Bank will be able to sell dollars even if the exchange rate is below ARS 51.5 per dollar. If the exchange rate is over ARS 51.5, the Central Bank would increase the sum of the daily auctions from USD 150 to USD 250 million. Likewise, it will be able to make further interventions if they are required in order to counter any events of excessive volatility. That is, the Central Bank will have the USD 250 million daily cap only if the exchange rate surpasses that ceiling and if there is no excessive volatility. The resulting amount of pesos will be deducted from the monetary base target, which, under such circumstances, implies reinforcing the contractive bias of the current monetary-exchange regime. Meanwhile, the Central Bank will not purchase currency until June this year if the exchange rate is below ARS 39.75 and the Treasury will continue to sell USD 60 million daily.