Argentina’s central bank is selling dollars rapidly to stabilize the peso amid global uncertainties and a potentially uncertain IMF deal. President Milei’s austerity measures have garnered investor trust, but restoring foreign reserves remains a challenge. The official exchange rate is falling against the growing black market rate, reflecting market apprehension. Recent sales indicate volatility, but past performance shows a robust start to the fiscal year.
Argentina’s central bank is compelled to increase dollar sales to stabilize the peso amidst escalating global uncertainties, particularly regarding new agreements with the International Monetary Fund (IMF). The bank has sold over $500 million in its recent interventions, ending a six-week period of net dollar purchases, as it strives to recover foreign currency reserves depleted over the past year.
Since libertarian President Javier Milei assumed office in late 2023, the government has garnered favor among markets through a stringent “zero deficit” austerity policy. However, the restoration of foreign reserves has been gradual. Milei aims to initiate a new IMF program to support public finances hindered by years of excessive spending and significant fiscal deficits, yet the specifics of the program remain uncertain and may encounter legislative challenges.
This ambiguity has placed pressure on the peso, especially following a strong 2024 performance. The official exchange rate was recorded at 1,068.5 pesos per dollar, with the black market rate reaching 1,260 pesos per dollar, revealing an approximate 18% gap between the two. This gap was significantly reduced late last year, after having burgeoned to nearly 200% in preceding years.
Juan Franco, the chief economist at Grupo SBS, remarked, “The market is showing uncertainty regarding the exchange rate pattern for the coming months, with parallel dollars in demand.” He also noted that prices for dollar futures contracts are showing pressures of implied increases surpassing the government-mandated devaluation rate.
On a notable day, the bank sold $474 million, marking its second-largest single-day sale since Milei took office. Roberto Geretto of Adcap Asset Management referred to this day as “one of the worst days of the Milei era,” yet he opined that this occurrence could be an anomaly and asserted that “a stumble is not a fall.”
The government disclosed in a recent decree that foreign currency reserves were negative $11.2 billion when Milei assumed office. This has improved by $7 billion, leaving reserves at approximately $4 billion in deficit as of March 6. The decree also hinted at a potential new loan program with the IMF, aiming to alleviate Treasury debt with the central bank, although formal agreements are still pending.
The administration has committed to gradually lifting stringent capital controls, contingent upon the provision of new funds from the IMF. Nevertheless, persistent efforts are required to reduce inflation, which, while decreasing under Milei, has maintained levels exceeding 2% monthly in recent months.
In conclusion, Argentina’s central bank is intensifying dollar sales to stabilize the peso against rising global uncertainties and a lack of clarity around a new IMF deal. Despite the government’s austerity efforts under President Milei and moderate improvements in foreign reserves, the ongoing pressure on the peso reflects market skepticism. The outcome of upcoming negotiations with the IMF and measures to control inflation will be critical in determining the economic trajectory moving forward.
Original Source: money.usnews.com
