Wall St expects Argentina market boost from IMF deal, big shift on FX controls

BUENOS AIRES/LONDON/NEW YORK, April 14 (Reuters) - Wall Street investors are forecasting a positive market reaction in Argentina after the country sealed a $20 billion loan program with the International Monetary Fund and undid large parts of its currency and capital controls late on Friday.

Traders expect bonds and equities to rise on Monday, with Argentina's risk index that reflects investor sentiment in the country's debt falling. The IMF support is seen boosting overall confidence and the removal of controls helping spur investment.

The peso ARS= is likely to weaken after the central bank undid its so-called "crawling peg" and shifted to a far wider trading band of 1,000-1,400 pesos per dollar, though this could be offset by increased demand for pesos from grain exporters.

The currency had closed at 1,074 per dollar, though popular parallel rates ARSB= often used by Argentines and local firms to access greenbacks due to strict capital controls in place since 2019 had been nearer 1,350 per dollar.

"We would expect a positive market reaction to the announcements made on Friday," investment bank Goldman Sachs said in a note on Sunday, adding that the new floating exchange rate "exceeded our expectations".

"(This) can positively contribute to the medium-term sustainability of the macroeconomic adjustment program being implemented in Argentina," it added.

The IMF deal will release an initial $12 billion, with $3 billion more coming later in the year. Argentina also announced large loan deals with other multinational lenders and banks that should help bolster its depleted foreign currency reserves.

The South American grains producer is digging itself out of a major economic crisis under libertarian President Javier Milei, who came to office in late 2023 and has managed to stabilize the economy with austerity and fiscal discipline.

The IMF deal came with targets and baseline assumptions that would see the country continue to commit to a "zero deficit" and to build up reserves this year. New investment in areas like energy and grains exports will be key for that.

J.P. Morgan said that the likely fall in the peso could be tempered by demand from grains exporters for pesos as they looked to liquidate their foreign currency income at a more attractive exchange rate.

"In our view, the official FX will likely stabilize below the parallel FX level as of Friday, with agriculture related FX supply catching up. The FX gap will likely shrink to around 5%," the investment bank said.

"The policy advancements represent a significant step forward, enabling the country to unlock a potential that has been stifled for decades due to poor policy-making."