Argentina’s New Monetary Scheme: Impact on the FX Gap

Since the start of Argentina's new monetary plan, which involves the Central Bank (BCRA) selling dollars from exporters, the FX gap has shrunk from 55% to 42%. Despite this, it hasn't dropped below 40%, well above the 20% seen in May. The BCRA's strategy has focused on preventing big jumps in the BCS rate rather than aggressively narrowing the gap. They hope to tighten the FX gap over time by reducing the number of pesos in circulation.

Many in the market believe the official exchange rate is too high and expect an eventual rate adjustment, especially if FX restrictions are lifted. This belief is due to ongoing inflation, which remains above the 2% monthly target, and external factors like the Brazilian Real's depreciation and falling soybean prices. The government argues against devaluation, saying it would only boost inflation. They believe competitiveness should come from reducing costs and improving productivity through market reforms.

If external factors stabilize and the government sticks to fiscal and monetary discipline, reducing inflation, there's a good chance to further narrow the FX gap. This could allow for lifting FX restrictions without causing a major rate jump, likely only a 10-15% adjustment to offset the removal of the import tax.

Reducing the FX gap is a complex task influenced by internal policies and external economic factors. With disciplined fiscal and monetary policies, Argentina could achieve a more stable exchange rate environment. As economic changes in Argentina continue our team will closely monitor these developments. Rest assured, we are committed to keeping you informed of any updates that may have an impact on your circumstances.

For a more detailed understanding or to address any specific inquiries, feel free to reach out to us at 604-643-0101 or cashgroup@cgf.com.