Argentina Central Bank Expedites Dollar Sales to Support Peso Stability
Argentina’s central bank is selling dollars quickly to stabilize the peso amid uncertainties surrounding a new IMF deal. President Milei’s administration has adopted strict austerity measures to improve foreign reserves. While there has been some progress, challenges like inflation remain significant, and the disparity in exchange rates highlights ongoing financial instability.
The Central Bank of Argentina is engaging in rapid dollar sales to stabilize the peso, which has faced mounting pressures due to global economic uncertainties and concerns regarding a new agreement with the International Monetary Fund (IMF). Recently, the bank has sold over half a billion dollars in two intervention rounds, marking a reversal of its previous trend of accumulating dollars over six weeks.
Under the leadership of President Javier Milei, who took office in late 2023, the government has gained favor with markets through a stringent “zero deficit” austerity strategy. Despite these efforts, the rebuilding of foreign currency reserves has been a gradual process. Milei is pursuing a fresh IMF program to support state finances that have suffered due to chronic overspending and significant fiscal deficits. The specifics of the proposed program are unclear, and it may encounter resistance in Congress.
The peso has faced pressures in 2024 following a period of strength, leading to a renewed discrepancy between the official exchange rate and the widely used parallel rates in Argentina. As of Tuesday, the official dollar rate decreased to 1,068.5, while the black market rate surged to 1,260, creating an approximately 18% gap. This gap had nearly closed late last year after widening to almost 200% in earlier years.
Juan Franco, the chief economist at Grupo SBS, noted that the market reflects uncertainty about the exchange rate’s future direction, driving demand for parallel dollars. Additionally, there are indications of pressure on dollar futures contracts, suggesting anticipated increases that exceed the government-mandated monthly devaluation rate.
The central bank’s sale of $474 million on Friday marked the second-largest daily transaction since Milei’s administration began. Roberto Geretto from Adcap Asset Management described this day as “one of the worst days of the Milei era,” yet he views it as possibly an isolated incident, emphasizing that such a setback does not signify a broader trend.
Recent reports indicate that Argentina’s net foreign currency reserves were negative $11.2 billion upon Milei’s assumption of office in December 2023. Progress has been made since then, with reserves improving by $7 billion, reducing the deficit to approximately $4 billion as of March 6.
Milei has also advocated for a new loan arrangement with the IMF aimed at decreasing Treasury debt to the central bank, although this agreement remains pending. The government aims to eliminate strict capital controls eventually, a process that might be bolstered by forthcoming IMF financing. Nevertheless, controlling inflation—currently above 2% monthly, despite declines under Milei’s administration—remains a critical issue for the government.
In summary, the Central Bank of Argentina is aggressively selling dollars to address currency pressures linked to global economic uncertainties and an impending IMF agreement. Under President Milei’s austerity measures, efforts to restore weakened foreign reserves are underway, though challenges persist including inflation control and political hurdles related to the IMF program. The disparity between the official and black market rates reflects ongoing instability in the Argentine financial landscape.
Original Source: money.usnews.com
