Argentina’s Central Bank sold US$803 million between Wednesday and Friday. On Thursday, the monetary authority had to part with US$599 million, the most in a single day since October 2019. 

US$179 million was sold on Wednesday and US$25 million on Friday.

The government attributed the sales largely to a spike in demand as the auto sector paid for imports after the PAIS tax was eliminated. However, some analysts told the Herald there are reasons to expect more sustained demand for dollars over the coming months.

Despite the three-day selling streak, December has been a good month for the Central Bank, with gross international reserves growing by US$1.3 billion. However, net international reserves remain around US$6 billion in the red.

Over those three days, the informal “blue” dollar rate rose by 4.7% to AR$1,215, while the financial MEP and blue-chip swap rates rose by just under 1%. The government intervened in the financial markets to contain their prices, leaving the gap between the official and financial dollar rates at around 10%. The gap had fallen to 4% earlier in December, the lowest since currency controls were reintroduced during the Macri presidency in 2019. 

A Central Bank spokesperson told the Herald the dollar sales were due to a “very specific situation” in which at least one major auto company had waited for the PAIS tax’s expiry on Monday before paying for imports. The bank will not continue to sell dollars at this level over the coming days, the spokesperson added.

The government maintains strict foreign currency exchange controls, collectively known as the cepo (Spanish for clamp). After President Javier Milei took office, the Central Bank fixed the value of the peso, establishing that it would be devalued by 2% a month. Last week, Milei said that the government aims to stop intervening in the foreign exchange market once the cepo is lifted. Economy Minister Luis Caputo had previously said that Argentina would require fresh funds from the International Monetary Fund (IMF) to eliminate the exchange controls.

Gustavo Quintana, an analyst and broker for PR Corredores de Cambio, agreed with the Central Bank’s argument that the sales were due to a particular situation. He pointed out that the volume of US dollar purchases and sales was greatly reduced on Friday after Thursday’s five-year record. 

“Besides, we’re near the end of the month and the year, and seasonally, this always sparks foreign currency demand,” Quintana told the Herald, adding that dollar income projections for next year are good.

The elimination of the PAIS tax, high import demand, and the strong peso could put extra pressure on foreign currency demand, according to Pablo Repetto, head of research at broker Aurum Valores. 

He added that the government is also losing US dollars through the so-called “blend dollar,” which allows exporters to sell 80% of their dollars in the official market and 20% at the blue-chip swap rate. He believes the government could be forced to eliminate or reduce it if demand for imports continues to grow as economic activity improves. 

Moreover, he noted, the IMF could require Argentina to remove the blend rate as a condition for a potential future agreement.

Independent financial analyst Christian Buteler said that if this week’s dollar sales are indeed mostly down to the PAIS tax’s expiry, then that suggests there is pent-up foreign currency demand. 

On the other hand, demand for dollars has fallen as carry trade operations have tapered off, he added. In this kind of operation, companies use dollars to buy bonds denominated in pesos, then buy back more dollars with the profits when the bonds mature. Companies taking credit in dollars for this purpose had been a strong driver of Central Bank dollar purchases in recent weeks. However, the falling interest rates that came after the financial dollar rates rose saw these deals fall off.

“We’ll see in the coming weeks what happens with the Central Bank: whether it continues to sell or starts buying again,” Buteler said. As the government continues to “normalize” the economy, he added, the “real” balance between US dollar purchases and sales would continue to adjust to market values. 

“The truth will become clear,” he said.