Central Bank tightens exchange controls to curb dollar outflows

The Central Bank published two new measures Thursday intended to curb access to hard currency amid expectations for a devaluation.

The institution published one rule change late Thursday affecting banks and another affecting consumers, as it tries to preserve its store of dollars to help defend the peso.

The measures follow midterm elections this month in which the government lost control of the upper house of Congress, and come at a time in which authorities are expected to step up negotiations with the International Monetary Fund over above US$40 billion in payments owed. It also adds to a string of existing currency restrictions, as savers seek refuge in hard currency amid inflation running at 50 percent annually.

“Argentina is advancing with IMF talks and that requires robust reserves,” Chief presidential spokeswoman Gabriela Cerruti told reporters Friday, when asked about measures impacting travel abroad.

The spot peso, which is controlled by the Central Bank through a crawling peg, fell 0.1 percent on Friday to 100.8 per dollar. The blackmarket peso, traded through informal exchange houses, weakened 0.5 percent further to 201 pesos per dollar.

FRESH RESTRICTIONS

In the measure targeted at consumers, the Central Bank said it will ban credit card operators from financing payments through installment plans if these are intended for tourism abroad, including plane tickets and car rentals. Such plans are popular among Argentines looking to finance their spending in as many as 18 installments which allows them to lock in prices before inflation pushes them higher.

The measure was published one day before the so-called ‘Black Friday’ shopping day, when stores cut prices to entice consumers.

These travel measures are “temporary,” Cerruti said, declining to give a specific timespan for them. Argentines travelling abroad outnumber foreigners coming into the country by a ratio of almost five to one, according to the latest government data, which also reflect the last few months of pandemic-related restrictions.

Shares of travel operator Despegar.com fell as much as 16 percent following the regulations as well as increased concerns of a new virus variant.

In a separate regulation published late Thursday, the Central Bank said it will no longer allow banks to hold net cash dollar positions at the end of a trading day. The rule becomes effective December 1.

The Central Bank has spent US $1 billion to defend the peso in the spot market since Oct. 28, according to official data that go as far back as November 18. Gross Central Bank reserves have fallen US$4.1 billion from an August high, when the government received additional funding from the IMF in the form of special drawing rights.

The ‘blue-chip swap,’ an implicit exchange rate derived from operations with assets that trade in pesos and dollars, has weakened 65 percent since President Alberto Fernández took office in 2019, to 219 per dollar on November 24. Its gap with the official peso, which closed at 100.7 per dollar on Thursday, stands at around 120 percent.