Agricultural dollar inflow and IMF: the official bet for exchange rate stability

After the recent rise in financial dollars, the Government maintains the expectation that the market will find a new equilibrium around current values.

The agreement with the IMF and the inflow of foreign currency from the main harvest are key factors to reduce volatility and sustain the disinflation process.

Inflow of dollars and strengthening of reserves

The second quarter historically represents the largest inflow of foreign currency from the liquidation of agricultural exports. This year, in addition, the impact of the new agreement with the IMF is added, which would include measures to strengthen the Central Bank's reserves.

The economic team is confident that this support will contribute to sustaining the value of the peso and, in turn, consolidating the decrease in inflation. Javier Milei anticipated that inflation could fall below 2% in April or May, although March will reflect specific increases in education and food due to seasonal factors.

The recent rise of the cash with liquidation (CCL) to levels close to $1,300 could generate incentives for grain companies to accelerate the liquidation of foreign currency in the coming days, taking advantage of a more attractive exchange rate.

• 20% of exports are liquidated in the financial market, so a larger exchange gap improves the selling price for exporters.
• Additionally,  the temporary reduction of withholdings until June provides an extra incentive for dollars to reach the market.

The challenge of the Central Bank

In the last four days, the Central Bank had to sell USD 930 million in the foreign exchange market, reflecting recent uncertainty in the international context.

• Faced with the rise of the dollar, exporters decided to postpone sales in anticipation of a better price.
• Importers accelerated purchases to avoid higher costs in the future.

As a result, the BCRA covered the demand with its reserves. Yesterday the trend continued with a new net sale of USD 186 million. However, the Government expects this scenario to reverse in the coming weeks, with the arrival of agricultural dollars and less pressure on the exchange rate.

By mid or late April, the official expectation is that  the Central Bank will once again accumulate reserves.

The international context and the impact on markets

The global outlook also played in favor of financial stabilization. After the meeting of the U.S. Federal Reserve (FED), it was confirmed that the agency will reduce the pace of dollar withdrawal from the market, going from USD 25 billion to USD 5 billion per month.

• This decision reduced global uncertainty, boosting the recovery of Wall Street and strengthening the valuation of Argentine bonds and stocks.
• In particular,  banking stocks led the increases, recovering a good part of recent losses.

Legislative support for the agreement with the IMF

At the local level, politics also contributed to stability. The Chamber of Deputies approved the DNU that enables the Government to negotiate the new agreement with the IMF, clearing doubts about the continuity of the talks with the organization.

Although details about the amount and conditions of the agreement are not yet known,  legislative support avoids a scenario of legal uncertainty that could have complicated the negotiations.

With these factors at play, the Government bets that the second quarter will bring greater exchange rate stability, with a more solid supply of dollars and declining inflation.