Argentina Suspends New Currency Futures as Weaker Peso Looms

  • Opposition had said that central bank was `defrauding' public
  • Onshore currency contracts may total $10 billion, Elypsis says

Argentina’s securities regulator put a moratorium on creating new currency futures as prosecutors probe allegations that the central bank was selling the derivatives at below-market rates to prop up the peso.

The move prevents the monetary authority from entering into new contracts that would have further increased its liabilities if President-elect Mauricio Macri goes ahead with a plan to end support for the currency when he takes office Dec. 10. Analysts surveyed by Bloomberg forecast the peso will drop 23 percent over the next three months.

The expected devaluation has investors, businesses and savers in Argentina scrambling to insulate themselves from the fallout, with dollar purchases by individuals rising to a record last month and companies using their spare cash to buy real estate and other hard assets. Allies of Macri filed a complaint with prosecutors Oct. 30 that said the central bank was “defrauding the public” by selling dollar futures at an artificially low rate during the presidential election and creating a liability for the next administration.

“This suspension is good from Macri’s point of view, because it means that the central bank doesn’t have to keep intervening and selling cheap dollar futures,” said Ezequiel Aguirre, a currency strategist at Bank of America Corp. “When the current contracts are due, if a devaluation has happened, the central bank will have to pay up. The suspension ahead of Macri’s first day prevents further increases of these contingent liabilities.”

While the central bank doesn’t publish data on the futures contracts it has on its books, they may total as much as $10 billion, according to consulting firm Elypsis.

The creation of new contracts in the onshore futures market, known as Rofex, had been suspended by the exchange since Nov. 20 and was due to resume Tuesday.

The securities regulator said the suspension was due to "emergency" reasons that "clearly point to the existence of extraordinary circumstances that affect the normal negotiation of dollar futures contracts." Its statement also noted that the opening of new positions could generate an "excessive increase in volatility" in the futures market. 

The onshore future prices suggest the peso will trade at 10.6 per dollar in the next three months, compared with 15.1 pesos per dollar in the offshore market. Trading volume on the Rofex more than doubled from a year earlier to a record in October as investors sought to profit from the growing gap between prices in onshore and offshore markets.

The peso trades at 9.694 per dollar in the official market, and at about 14.6 per dollar in the so-called blue-chip swap market that investors use to skirt currency controls.

“The current government had the incentive to intervene so that the official dollar and the blue-chip swap wouldn’t weaken ahead of the election,” Aguirre said. "Since a peso devaluation is highly likely, the futures may generate large losses for the central bank.”

Also Tuesday, Argentina’s futures exchange Matba suspended trading in dollar-denominated futures and agriculture futures indefinitely, noting that no new contacts may be opened.

"With this decision to freeze the market, the market is putting the ball on the next administration’s court and placing the burden of reopening the futures exchange on top of everything else they need to do," said Leonardo Chialva, a partner at Delphos Investment in Buenos Aires. "The situation snowballed out of the central bank’s control."

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