The Government continues its progress towards flexibility of the exchange rateand last week Javier Milei celebrated the drop in inflation Octoberwhich pierced 3%, announcing that it could remove restrictions on the dollar in five months if the slowdown in the price index continues. Although the Minister of Economy, Luis Caputoassured that in order to meet this objective there must be “an injection of reserves” in the Central Bank. In this context, different market actors agree that “the conditions are not met” to lift the stocks before the 2025 midterm elections.
“I warn you that, if we repeat numbers in this line for two more months, we will be lowering the ‘crawling peg’ to one and When we repeat three months of one, we will be freeing the exchange market and freeing ourselves from the stocks and get out of all this adventure. So things are beginning to be seen,” the President said last week. However, Caputo came out to put a cold shoulder and focused on the Central Bank’s reserves as a condition to be able to dismantle the trap.
Currently, reserves are better than months ago, economists and market analysts agree. The thing is, the Government has bought more than US$17,000 million so far this year and gross bookings are in the US$30,282 million. Still, Sebastian Menescaldidirector of Eco Goassured that “with the fragility of the demand for the peso in Argentina, releasing the stocks without having dollars in reserves would be a ‘kamikaze’, even if the program is going very well.” “I don’t see any chance that our country can release the stocks in the short term”he pointed out.
Dollar stocks: what variables must improve so that it ceases to exist
The level of reserves, as Caputo pointed out, is one of the main points that economists and financial analysts observe. So much so, that Menescalid pointed out that The exit from the stocks must occur “within a broader program, perhaps including disbursements from the International Monetary Fund (IMF)”.
Nobody can give a date. Caputo himself stated that “next year at some point he will get out of the trap” before economists and businessmen at a conference organized by the Latin American Economic Research Foundation (FIEL). “For me it will not be before the elections,” added the economist from CESO, Federico Zirulnikwith whom Menescaldi agreed.
“You have to look at the stock and flows of both dollars and pesosto understand how the jump in the demand for dollars can be coordinated at the official exchange rate that the lifting of the stocks“, analyzed the director of Analytica, Claudio Caprarulo.
The gaps of the financial dollars and the official are around the 7% and 13%he country risk continues on the downward path and positions itself in 746 basis points; and the greater currency supplyshow that the market trusts the Government. This “reduces the risks compared to previous months,” said Caprarulo.
“Just because the gap is close to ‘zero’ does not imply that we will get out of the trap when this happens.”“, they noted in the weekly outlook report of PPI. “If so, the external sector should be balanced with this real exchange rate ($1,002.75 the official one at the close of Friday). It is a highly appreciated level, only comparable with moments that were followed by strong devaluation jumps, such as in December 2015 ($904 in real terms) and 2023 ($917)”, they added.
The specter of inflation
The disarmament of the stocks will fully influence monthly inflation, which is one of the Government’s workhorses and we must see if it is willing to deliver it. “Getting out of the stocks will surely imply an exchange rate jump and that jump could ignite the price index”Zirulnik warned.
The Government is directly betting on lowering inflation ahead of the 2025 elections, as an achievement of its management. However, the exchange rate jump should occur at the exit of the stocks, as PPI mentions in its report, so maintaining an exchange rate at $1,002.75 is extremely appreciated and comparable to other times where large devaluations had to be carried out.
For this reason, Menescaldi agrees that “It may have an impact on inflation”although it highlights that ““It should be more limited than last December (25.5%), due to the greater credibility that the Government has after a year in office”.
Another variable that can influence is the international context. In that sense, the director of Eco Go explained that the international prices of raw materials, which can change depending on the context, also play a key role. Although the arrival of donald trump to the United States government may be satisfactory because of the role in the IMF, for the soybean price could not be of much help, since the Republican is betting on raising tariffs on China, which could trigger a weakening of the Asian power and could result in lower consumption of oilseed.
Source: Ambito
I am an author and journalist who has worked in the entertainment industry for over a decade. I currently work as a news editor at a major news website, and my focus is on covering the latest trends in entertainment. I also write occasional pieces for other outlets, and have authored two books about the entertainment industry.
