He Central Bank of the Argentine Republic (BCRA) is located at a crossroads under the new exchange scheme, While seeking to strengthen international reserves without compromising The commitments assumed with the International Monetary Fund (IMF) or destabilize the domestic disinflation process. The framework, detailed in a recent statement from the BCRA and backed by an agreement with the IMF, allows the bank to buy dollars within a exchange rate band. However, The government’s decision to intervene only on the floor of said band has generated concerns about the accumulation of reserves, inflationary pressures and the sustainability of the current economic strategy.
A new exchange scheme
The exchange flotation band It establishes a range for the value of the weight against the dollar, initially set between $ 1,000 and $ 1,400. This range is dynamic: the upper limit increases a 1% monthly, while the lower decreases in the same percentage. This structure implies that the price at which the BCRA can buy dollars on the band’s floor is reduced daily, requiring a progressively stronger weight to activate the intervention.
This Wednesday, The dollar fell almost 6% compared to weight, but there is still approximately 13% above the band of the band, which prevents BCRA from buying dollars under its declared policy. This reluctance places the government in a delicate position. The agreement with the IMF requires an increase of $ 4,000 million in net reserves for July and another $ 8,000 million by the end of the year, goals that could be in danger if the dollar does not reach the band’s floor. Failure to violate these objectives to violate the agreement with the IMF, while intervening prematurely would contradict public announcements, potentially undermining the credibility of the government.
Disinflation incentive
The Government’s strategy to buy dollars on the band’s floor seeks to strengthen the disinflation process, a priority accentuated since inflationary pressures stopped their descent in February. A stronger weight, encouraged by BCRA purchases at lower prices, could stabilize internal prices by reducing the cost of imported goods and moderating devaluation expectations. However, this tactic assumes that the dollar will naturally descend towards the lower limit of the band, a scenario that recent market dynamics have not supported.
The flexibility of some foreign exchange restrictions, which allows natural persons to buy dollars, initially generated fears of greater demand that could push the dollar towards the upper limit of $ 1,400, an increase of 30% from the current levels. Such a trigger would have a significant impact on the economy, raising the prices of goods and services and reviving inflation. The caution posture of the government reflects this concern, prioritizing exchange stability on an aggressive accumulation of reserves.
The inflationary risk of dollar purchases
ORn central challenge lies in the mechanics of dollars purchases. When the BCRA acquires dollars, it injects pesos into the economy, a process that could feed inflation. The Government argues that these issues of pesos reflect a genuine demand for local currency, especially because exporters are obliged to liquidate their dollar income in the domestic market. However, this statement is controversial. The mandatory currency liquidation implies that the weights received by the exporters do not necessarily reflect an organic demand, and a part of these funds could become surplus liquidity, pressing the prices.
Buying dollars on the band of the band would minimize the amount of pesos emitted, reducing the potential inflation damage. However, this strategy depends on the market conditions align with Government expectationsa risky bet since the current range of the dollar is the face measured in foreign currency, which eventually achieved other potential problems such as activity drop and level of employment.
Alternatives to accumulate reservations
To rebuild reserves without resorting to the issuance of pesos, The BCRA could sell part of its bond portfolio, absorbing weights of the market and using the funds to buy dollars. This approach would neutralize the inflationary impact of currency purchases, but is limited by the bank’s liquid assets and the market disposition to absorb Argentine debt.
For its part, The Treasury could acquire dollars with fiscal surpluses or issuing new debt, using these funds to cancel non -transferable letters with the BCRA. However, recent bond tenders have failed to renew the maturities, and treasure dollars needs exceed their fiscal surplus or its debt capacity.
The argument for a free market
The origin of the Argentine dilemma lies in its partially restricted exchange market. Although natural persons face less barriers to buy dollars, companies are still subject to strict controls, and exporters are obliged to liquidate their currencies. This hybrid system distorts the dynamics of the demand for weights, making it difficult for the BCRA to determine whether the emissions of pesos respond to genuine needs of the market or regulatory mandates.
A completely liberalized exchange market, where all economic agents can participate freely and exporters are not obliged to sell their dollars, could solve this problem. In such a scenario, an excess of supply of dollars would indicate an authentic demand for pesos, allowing the BCRA to buy currencies without fear of inflationary liquidity. However, as long as these reforms are not implemented, pesos emissions associated with dollar purchases will continue to represent a risk of price instability, since it cannot be distinguished how much the demand for weights is genuine and how much is imposed by regulations.
A delicate balance
Argentina’s economic team faces opposite priorities: comply with IMF reserves, sustain disinflation and manage the inflationary consequences of exchange interventions. Bcra’s commitment to buy dollars alone on the band’s floor reflects a cautious approach to exchange rate management, but limits its flexibility to address the shortage of reserves. Alternative strategies, such as the sale of bonds or the purchases of dollars led by the Treasury, face practical restrictions, while a completely free market remains a distant perspective in the midst of political and economic realities.
If the dollar price does not reach the band’s floor in the next 30 daysWhen the largest seasonal offer of dollars is concentrated for the field settlements, hardly the BCRA can sustain the decision to buy only in the lower band of the flotation.
As the weight value fluctuates within the flotation band, the government’s ability to navigate this dilemma will define the economic trajectory of Argentina. For now, those responsible for policies bet on a weakest dollar that is aligned with its intervention threshold, a bet with high implications for domestic stability.
Source: Ambito
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