Argentina central bank to use ‘full force’ to tame FX markets
BUENOS AIRES: Argentina’s central bank will use its “full force” to rationalise runaway demand for dollars and tame the country’s volatile parallel foreign exchange markets, which have heated up due to tough capital controls, a bank source told Reuters.
Earlier this month the bank tightened rules on companies accessing dollars in alternative foreign exchange markets, part of a bid to limit parallel trades where individuals and firms pay a steep premium for hard currency.
The bank source, declining to be named, told Reuters the bank would wait and see how effective the measures it had taken were before deciding if more restrictions were needed. Dollars trade for around 170 pesos on popular parallel markets, versus the official rate of around 96 pesos.
“We are using our full force to rationalize the demand for dollars,” the person said. “We will continue on this track.”
Many companies and individuals in the South American nation access dollars via legal, though unofficial, as well as illicit black market routes that oten involve processes of buying and then selling financial assets in Argentina and abroad.
Argentina imposed tough capital controls in 2019 that have been hardened in a bid to stem an ouflow of dollars from the country, which is locked in talks to revamp some $45 billion it owes the International Monetary Fund.
The central bank has also been rebuilding depleted foreign reserves and purchased over $7 billion so far in 2021, official data show, though is set for a more complex second half of the year with seasonally lower farm exports, the person said.
“The third quarter will be a more complex period for reserves,” the person added, adding that the bank was prepared if needed to sell dollars up until the end of the year, though there could be a “positive surprise” given high global prices for commodities and helpful weather spurring grains harvests.
The person added, however, that cold winter weather and dryness impacting waterway levels was increasing the need for more imports of combustibles, which would likely create an energy deficit ater a balance last year.
A spokesperson for the central bank declined to comment.
Argentina has been batling swirling economic and debt crises for years. Inflation is running at an annualized rate just over 50 per cent, the benchmark interest rate is 38 per cent and poverty levels jumped to 42 per cent at the end of last year.
The grains-producing country, in recession since 2018, also saw growth hammered even further by the coronavirus pandemic last year, though it has shown signs of recovery this year.
The center-let Peronist government is locked in debt talks with the IMF, with recent progress in negotiations and hopes of sealing a deal later this year or early in 2022.