Argentina Keeps Winning the Battle Against the Dollar
Argentina celebrated the continued decrease in the dollar-peso exchange rate, even predicting that it might fall below the flotation bands established by the central bank. This would trigger a purchase intervention from the bank to weaken the peso.
Argentina appears to have devised a formula to control demand for the U.S. dollar, successfully transitioning from a currency-controlled economy to a free-floating band system without triggering explosive devaluation levels.
The move, part of President Milei’s campaign promises, encountered a market that did not turn to buy dollars outright and is instead cautiously optimistic about the future of the Argentine peso. During Monday, the dollar exchange rate fell even further, closing at nearly 1,100 pesos per dollar, registering a 4% intraday drop.
Most notably, dollar futures dropped close to 6%, meaning the expectation is for further falls, even taking the exchange rate close to the central bank intervention spot: 1,000 pesos per dollar.
If the rate hits that number, the central bank will purchase dollars, withdrawing liquidity from the market. Nonetheless, if demand rises, the bank is also equipped to inject liquidity, having received a $20 billion credit facility from the International Monetary Fund (IMF).
Read more: Argentina Scores $20 Billion Key IMF Credit Facility, Terminates Currency Controls
Economy Minister Luis Caputo celebrated this result, rejecting the statements of critics who assumed this move would result in a massive devaluation of the peso. On social media, Caputo stated:
We should expect a torrent of colleagues and journalists apologizing for telling people that we had devalued, but it’s probably not going to happen.
“Once again, we did what we said we were going to do, and what we said was going to happen happened,” Caputo concluded.
Nonetheless, the situation might harm the government’s strategy soon, as exporters might avoid injecting dollars into the market due to the low exchange rate. Additionally, the current dollar weakness in international markets might be at play here, as it recently fell against its peers, pushed by diverse factors.
Read more: Dollar Reined in After First Currency Control Free Week in Argentina
