A new international report knocked on the door at the heart of the Government’s main mystery: the release of the exchange rate cap. While analysts and economists debate how close or far we are from that moment, the Bank of America He already gave his point of view and suggested a jump in the dollarHowever, he remains optimistic and says that Argentina is facing a “golden opportunity.”
The Global Research report focused on the reduction of the PAIS Tax that will come into effect from September 1 and stated that the Government could compensate for the reduction in taxes on imports.with a higher official exchange rate.”
“We maintain our overweight recommendation on Argentina because we believe there is a golden opportunity. Opportunity for the Government to carry out exchange rate reforms in September-December, when the interest rates are expected to be reduced. import taxes (the first 10 percentage point cut is expected in September). If the import tax reduction is offset by a increase in the exchange rate, then it could make the peso more competitive for exporters without risk a large increase in inflation.”
At the same time, he warned that it could be “counterproductive” to make imports cheaper at a time when the Government needs to accumulate reserves to meet IMF targets and pay due payments. It is worth remembering that between the second half of 2024 and the first half of 2025, the Government will have to face payments of around US$12 billion.
BoFA maintains crawling peg at 2% in the short term
The consensus view, according to Bank of America analysts, is that the government will maintain the pace of devaluation at 2% as it has been doing so far and there will be no change in exchange rate policy in the short term. However, they say this will provide “asymmetric optionality in bonds.”
The value of bonds as a fiscal anchor
For BoFA, the bonds’ value acts as “fiscal anchors.” “Although we recognize that the Government’s exchange rate policies raise questions, We believe that bond prices should be anchored for the government’s success in other areas, including an aggressive fiscal adjustment, a faster-than-expected disinflation, a recovery in activity, resilient approval ratings, and the approval of the Bases law, which demonstrated stronger governance than expected.”
Dollar, inflation, growth and reserves: BoFA’s expectations for Argentina
The US bank admitted that disinflationary expectations are “higher than expected” and estimated inflation of 131% in 2024, a drop from 211% last year. “We see a further drop to 40% in 2025 (45% before),” they explained.
As for growth, BoFA expects a 3.8% GDP contraction for this year. Regarding reserves, they say that although they were under pressure from debt payments and lower grain prices, the 2% crawling peg raises doubts as an overvaluation of the peso is estimated.
“We expect the BCRA to maintain the 2% advance but with adjustments to compensate for the elimination of the PAIS tax. Reserves increased by US$6 billion since December, but remain low (US$-4.5 billion). The BCRA’s dollar purchases have slowed (it bought only US$200 million since June),” they explained.
Finally, they state that The Government expects foreign currency inflows from the IDB, energy exports and money laundering.
Source: Ambito
