Gov't depletes room to intervene in currency futures ahead of election

Argentina’s Central Bank is almost out of room to intervene in currency futures, the main avenue it’s been using to prop up the plunging peso ahead of a pivotal presidential vote on Sunday.

The country’s monetary authority has sharply increased its sales of peso futures contracts on Rofex, the biggest derivatives market, to supply investors seeking to hedge against a post-election devaluation, people with direct knowledge of the matter said. The central bank, which is almost the only seller in Rofex, saw its “sold” position exceed US$4 billion on Thursday, according to the people, who asked not to be named discussing private information.

The limit for the position, which is established by Rofex, is US$5 billion. As it nears that cap, the bank is being forced to “move” to the secondary futures market, Mercado Abierto Electronico (MAE), which is owned by the country’s main private banks. The Central Bank increased its sales of peso futures there by 50 percent this week to US$1.3 billion, one of the people said. That leaves the monetary authority with about US$2.7 billion to intervene in the MAE.

A Central Bank spokesman declined to comment.

Angst is spreading among investors ahead of Sunday’s presidential election, with nearly every scenario pointing to further losses. Confidence in the government and banking system are in the tank. The peso has lost more than 92 percent of its value since 2019, after years of budget deficits funded by printing money.

Futures show 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. October and November are the positions where the Central Bank shows the greatest intervention, the people said. The market shows an abrupt fall at the end of December, to 825 pesos, once the new government has taken office, which would mean a devaluation of 58 percent for the peso.

Argentina devalued the currency by 18 percent the day after a primary vote — seen as a barometer for this weekend’s election — in August. While the government has said it will keep the currency stable until November 15, there’s widespread public speculation of an imminent devaluation as the peso continues to sell off in the parallel market, recently topping 1,000 per dollar.