Central bank widens exchange rate band
Argentina’s central bank announced it will adjust its exchange rate framework and accelerate the accumulation of hard currency reserves, as President Javier Milei seeks to calm investor concerns over the country’s persistent shortage of dollars.
Starting January 1, the monetary authority said the upper and lower limits of the peso’s exchange rate band will expand each month in line with the previous month’s inflation rate, replacing the current fixed adjustment of 1 percent. Inflation stood at 2.5 percent in November, underscoring pressure on the existing system.
Reserve buying plan targets $10bn
The central bank also unveiled a reserve accumulation program designed to align with money demand and liquidity conditions in the foreign exchange market. Under its base case scenario, officials said the plan could allow Argentina to purchase up to $10 billion in reserves by December 2026.
These changes represent the most significant overhaul of the exchange rate regime since it was introduced in April as part of a $20 billion agreement with the International Monetary Fund.
Investor concerns over low reserves
Economists and investors have criticized the current policy for prioritizing a strong peso to curb inflation while delaying the accumulation of reserves needed to service debt and pay for imports. Analysts estimate Argentina has fallen more than $10 billion short of an IMF reserve accumulation target.
That scarcity contributed to a sharp selloff of the peso in October, when fears mounted that the government lacked sufficient dollars to defend the exchange rate bands. Following Monday’s announcement, yields on Argentina’s 10 year government bond slipped slightly to about 10.32 percent, reflecting a modest improvement in market sentiment.
Calls to lift capital controls persist
Some investors have urged Milei to capitalize on renewed optimism after his party’s midterm election success by removing remaining currency controls and allowing the peso to float freely. However, economy minister Luis Caputo has repeatedly rejected that option, arguing it carries excessive risk given Argentina’s history of abrupt devaluations.
While analysts say the latest changes may help ease pressure and support reserve growth, doubts remain about whether the measures go far enough to fully reassure markets.
