Argentina FX rates converge as focus turns to reserves build-up

By Jorge Otaola

BUENOS AIRES, May 6 (Reuters) - Argentina's main exchange rates, the official peso ARS= and the black market ARSB=, have converged after almost six years of tight capital controls that spawned a host of parallel rates, with focus turning to the central bank's foreign currency reserves.

The official cost of one dollar rose to 1,203 pesos on Tuesday, making it more expensive than at the black market rate of 1,180 pesos, a sharp reversal of recent years when the exchange rate was pegged and access to dollars severely restricted, pushing up the price in parallel markets.

Argentina, under libertarian President Javier Milei, is undergoing a major economic overhaul, with tight monetary policy helping overturn a deep fiscal deficit, tamping down one of the world's highest inflation rates.

Milei's government last month eased large swathes of the sprawling capital controls that had been in place since a market crash in 2019, removing a 'crawling peg' on the peso currency and allowing it to float within a wide trading band.

That has seen the gap between the rates - around 200% at its widest in recent years - finally close, with the official rate hovering in the middle of the new trading band between around 1,000-1,400 pesos per dollar.

"It's good that the peso is beginning to find a leveling zone, and the middle of the band isn't bad, especially given the fear that the end of the currency controls would lead to a sharp devaluation," said Buenos Aires-based analyst Marcelo Rojas.

"Now we'll have to pay close attention to the central bank's behavior because fresh dollars are expected, and this would cause the currency to appreciate toward the bottom of the band."

Analysts and traders are now turning attention to the central bank's ability to build up depleted foreign currency reserves that have been in the red on a net basis until a recent $12 billion injections from the IMF under a new loan deal.

The country, a major grains producer, should see an influx of dollars from exports of soy and corn over the next month.

"The relaxation of exchange controls is positive, but the market is still waiting to see whether the central bank will finally be able to begin accumulating genuine net reserves," said Juan Manuel Franco, chief economist at SBS Group.

"We're waiting to see what the flows will be like in May, which is typically the best month for agricultural inflows."