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BBVA Says New Measures Not Definitive Solution To FX Market Tensions

ARGENTINA
  • Following the start of USD sales in the country’s parallel markets by the BCRA, BBVA believes that the latest measures are likely to have some short-term success in moderating the exchange rate gap, but they are not a definitive solution to the tensions in the FX market. They believe that the announcement of a roadmap for the elimination of FX controls and clear guidelines for a definitive exchange rate scheme would help reduce market uncertainty heading into 2025. Otherwise, the risk of one-off adjustments will continue to escalate in the background.
  • BBVA notes that the BCRA has been struggling to accumulate reserves lately and actually sold USD in the official market in June before accumulating some in July. But as the year progresses, the positive seasonality associated with exports will likely fade, as will the firepower to act in parallel markets. In addition, the full compression of parallel rates may disincentivise some of the exporter flow, while a narrower FX gap means the BCRA will accumulate fewer reserves.
  • Meanwhile, the government says that the current FX/monetary scheme will be maintained, including the 2% m/m crawling peg. President Milei stated that he would seek to drop FX controls when core inflation approaches 2% m/m. BBVA says that the trend in international reserves will be what sets the pace of exchange rate pressures and the mood of the market in the coming weeks. If reserves fall or remain very low, the FX gap will remain under pressure, and the government will likely come under even more pressure to relax FX restrictions.

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