From the exchange unification announced on March 14, 2025, the dollar in Argentina has undertaken a volatile search for its new equilibrium level within a managed flotation band. The first days of the scheme, which marked a new flexibility of exchange ratethey have been marked by sudden oscillations, a reflection of a market that tries to reconcile the expectations of economic agents with the policies of the Government of Javier Milei.
The Executive is committed to anchoring the exchange rate to the band’s floor to avoid inflation and accumulate reservations, but the question is whether that value is sustainable or even desirable for an economy that needs competitiveness and growth. In a context of seasonal agricultural liquidations and global support, the dollar is in the center of a delicate act of balancing.
A volatile dance: the dollar in search of its new floor
A possible new exchange scheme, filtered on March 14 in the framework of negotiations with the International Monetary Fund (IMF), unleashed a storm in the market. Uncertainty led to an increase in the demand for dollars and a retraction of the offer, forcing the Central Bank of the Argentine Republic (BCRA) to sell more than 2,000 million dollars in less than a month to contain the pressure. With the formal implementation of the regime, which allows the dollar to fluctuate inside a band where the BCRA would buy on the floor and sell on the ceiling, the economic agents began to recalibrate their strategies.
The first days of the scheme are volatile. The dollar shot at the opening day, but soon the supply exceeded the demand, pushing it towards the lower part of the band. However, in this week, the exchange rate bounced, approaching the initial levels again. This volatility reflects a market in transition: the early demand of March dissipated, while the supply, previously retracted, begins to flow.
As the dollar approaches the band’s floor, the incentives change. Imports are cheaper, the Carry Trade It loses attractiveness and the purchase of currencies becomes more tempting. This behavior, combined with the seasonality of agricultural exports, raises a critical challenge: finding a rate of exchange that stabilizes the economy without sacrificing its competitiveness.
The Government’s commitment: the band of the band at all costs
The Milei Government has made the exchange appreciation its immediate priority, seeking to anchor the dollar to the band to avoid an inflationary acceleration and strengthen international reserves. To do this, it generates the necessary incentives:
- Monetary hardening: The BCRA refrained from intervening in the passes market, which shot interest rates in the first two post-unification days, sending a sign of monetary discipline.
- Fiscal incentives: Milei confirmed an increase in retentions to agricultural exports from July, a measure designed to encourage the agricultural sector to liquidate currencies in the short term.
- Capital flexibility: Restrictions for investments were relaxed Offshore.
The initial results have been positive at the moment. The market with liquidation (CCL) was compressed, the country risk decreased and Argentine assets registered significant profits in dollars. However, the obsession with the band’s floor raises questions about its sustainability and convenience for the economy as a whole.
An apartment that serves the Argentine economy?
While the government’s strategy seeks stability, forcing the dollar to the band’s floor may not be optimal for the Argentine economy. The exchange rate must reflect the average productivity of the economy. A dollar too low could erode the competitiveness of local industries, discourage export and complicate the commercial opening that the Government promotes. On the contrary, an exchange rate too high, would cause an inflation acceleration in the short term, the market needs to find a balance that does not destroy any variable.
The agricultural sector is located in the center of this tension. The next 45/60 days will be fundamental, since they mark the seasonal peak of export settlement, especially soybeans. This offer should press the dollar towards the band’s floor, but producers face a dilemma. The combination of the value of the dollar with that of soybeans could encourage the sector to collect part of the production waiting to get better prices. If exporters choose to retain their grains, the foreign exchange offer may not be enough to sustain the exchange rate at the level desired by the Government, forcing it to intervene before reaching the band of the band to meet the accumulation goals of reserves agreed with the IMF.
This risk highlights the fragility of the current balance. A dollar on the band of the band could benefit the government by reducing inflation and accumulating reserves, but at the cost of encouraging imports damaging local production. The value of the dollar must serve the local economy, allow industries to continue producing and compete while the economy opens and imported products enter.
Implications for investors: navigating uncertainty
For investors, the search for the dollar for its new balance offers opportunities, but also risks. The compression of the yields of the titles in pesos, such as LECAP and BANCAP, led to the Ministry of Economy (Mecon) to offer longer instruments in the auction of April 24. However, it could only be renewed 70% of the maturities that added to the renewal of 75% of the middle of the month will make the treasure around $ 3.9 billion that could not roll.
A balance at stake
Even, with exchange restrictions for companies that are maintained, the market needs to find its balance within the new exchange scheme. The same will not necessarily reflect government wishes, forcing it to non -sustainable values could generate a political benefit in the short term but medium -term economic damage.
In his search for a new balance under the exchange scheme, the dollar embodies the challenges of an Argentine economy in recovery. With multiple objectives at stake – to make development, boost growth and contain inflation – the exchange rate must be a catalyst, not an obstacle. The key to finding that optimal value lies in allowing the market to operate with the least possible state interference, letting supply and demand, molded by agricultural liquidations and global dynamics, define a level that drives competitiveness without unleashing inflationary pressures.
Source: Ambito
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