Argentina’s central bank will use “all its strength” to tame foreign exchange markets, source says


BUENOS AIRES, July 19 (Reuters) – Argentina’s central bank will use “all its might” to streamline runaway demand for dollars and tame the country’s volatile parallel currency markets, which have heated up due to tight capital controls, a banking source told Reuters. Monday.

Earlier this month, the bank tightened the rules on companies accessing dollars in alternative forex markets, in an attempt to limit parallel trading where individuals and businesses pay a steep premium for them. hard currencies.

The bank source, declining to be named, told Reuters the bank would wait to see the effectiveness of the measures it had taken before deciding whether further restrictions were needed. The dollar trades at around 170 pesos in popular parallel markets, against an official rate of around 96 pesos.

“We are using all of our strength to rationalize the demand for dollars,” the person said. “We will continue on this trail.”

Many businesses and individuals across the South American nation access dollars through legal, albeit unofficial, channels as well as illicit black market channels that often involve the process of buying and then selling financial assets in Argentina and abroad.

Argentina imposed strict capital controls in 2019, which were tightened in an attempt to stem an outflow of dollars from the country, which is negotiating to reorganize some $ 45 billion it owes the Monetary Fund international.

The central bank has also replenished depleted foreign exchange reserves and bought more than $ 7 billion so far in 2021, official data shows, but is scheduled for a more complex second half of the year with weaker seasonal agricultural exports, said the person.

“The third quarter will be a more complex time for reserves,” the person added, adding that the bank was prepared if necessary to sell dollars until the end of the year, although there may be some. positive surprise “given the high world prices. for the raw materials and the favorable weather conditions which stimulate the cereal crops.

The person added, however, that the winter cold and drought affecting stream levels increased the need to import more fuels, which would likely create an energy deficit after a balance last year. Read more

A central bank spokesperson declined to comment.

SLOW DROP IN PESO

Argentina has struggled with swirling economic and debt crises for years. Inflation runs at an annualized rate of just over 50%, the benchmark interest rate is 38% and poverty levels jumped to 42% at the end of last year.

The grain-producing country, in recession since 2018, also saw its growth hammered even further by the coronavirus pandemic last year, although it has shown signs of recovery this year.

The center-left Peronist government is engaged in debt talks with the IMF, with recent progress in negotiations and hopes of reaching a deal later this year or early 2022.

Strict capital controls, first imposed after a stock market crash in 2019 by the previous government, have helped control the official peso rate, although analysts have said the controls create pent-up inflation that will need to be released.

The central bank source said a recent trend of decelerating the peso’s devaluation would continue, but did not predict a sharp devaluation later this year, which some analysts were anticipating ahead of the November midterm elections. .

Inflation, while still very high, cooled on a monthly basis to a low of 3.2% in 2021 in June. The government and the central bank see this decline continuing into the second half of the year, which could avoid the need for an interest rate hike.

The central bank source said that at current monthly inflation levels, a rate hike was unlikely unless prices rose sharply again in the second half of the year. Other countries in the region such as Chile and Brazil have recently raised their interest rates.

The person added that there was a longer-term shift from the benchmark interest rate set by the Leliq short-term notes issued by the central bank to Treasury debt in the open market, although this is an ongoing process to build market confidence.

Report by Adam Jourdan; Editing by Dan Grebler

Our standards: Thomson Reuters Trust Principles.


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