(Bloomberg) — Argentina’s central bank will sell U.S. dollars on the country’s parallel currency markets starting Monday, a move that Economy Minister Luis Caputo called “a deepening of the monetary framework.”
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Caputo and President Javier Milei began developing a new strategy on Saturday that aims to limit the widening gap between Argentina’s official exchange rate and parallel rates traded on financial markets. While the official peso rate is 919 per dollar due to currency controls, one of the main parallel rates closed at 1,405 per dollar on Friday.
Monthly price increases started to accelerate slightly in June for the first time since Milei took office on December 10, according to government figures released on Friday. Annual inflation of 272% remains one of the highest in the world and is well into crisis territory.
Caputo, who is attending the Sun Valley Conference in Idaho with Milei, said the monetary authority will sell dollars on one of the parallel currency markets, known as the blue chip swap or contado con liquidacion, to offset the emissions of pesos from the purchase of dollars at the official exchange rate.
“If the central bank buys dollars in the official foreign exchange market, the equivalent emissions of pesos will be sterilized by the sale of equivalent dollars in the contado con liquidacion market,” Caputo wrote in a series of posts on X.
Starting Wednesday, banks will resell to the central bank their put options, guarantees the monetary authority had given to buy back notes if they fall below a certain price, Caputo said in a radio interview on Saturday, without giving details. Puts represent another potential source of monetary issuance and a major obstacle to lifting capital controls.
These moves could likely exacerbate ongoing market concerns that the government is allowing the official exchange rate to become too overvalued by maintaining strict currency controls. They would also further hamper the central bank’s ability to build up the foreign reserves needed to lift controls at some point, and ultimately return $44 billion to the International Monetary Fund and return to the international debt markets.
Government officials already predict that the central bank will lose $3 billion in reserves in the third quarter. After quickly rebuilding depleted reserves left behind by the previous government earlier this year, the central bank has recently struggled to build reserves at the same pace as exporters are selling less abroad, expressing concern that the currency is overvalued.
In a television interview with LN+ earlier Saturday, Milei promised to continue fighting inflation while maintaining the budget balance.
“We need to get those pesos off the streets, and that will narrow the exchange rate gap,” Milei said, referring to the market intervention.
(Update with radio interview in sixth paragraph.)
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