The Central Bank announced on Monday that Argentina will modify its currency exchange bands in alignment with the inflation rate beginning in 2026. The monetary authority is set to initiate the accumulation of international reserves, a move it had previously hesitated to undertake due to concerns about potential inflationary pressures. “We entered a phase in the economy that will be characterized by growth and remonetization,” Central Bank President Santiago Bausili stated. The new policies were described as “very consistent with the downward path of inflation,” with the assertion that these changes were feasible due to the stabilization of Argentina’s political scenario. The government exhibited robust performance in the October mid-term elections, securing its position as the largest bloc in the Lower House. The International Monetary Fund, which had advocated for reserve accumulation and a more flexible exchange rate policy, welcomed the announcement. “We are working closely with the Argentine authorities as they implement these important measures,” Julie Kozack stated.
Bausili confirmed collaboration with the Fund, while noting that the Argentine government is delineating the program. He noted that the U.S. Treasury, which provided Argentina with a US$20 billion credit line prior to the October midterms, is also cognizant of the program. However, he stated that the U.S. government was interested “mainly as a shareholder in the Fund, not necessarily as a participant with a position in our economic policy measures.” In April, Argentina implemented a banded exchange rate system, permitting the U.S. dollar to fluctuate within a defined range. The Central Bank intervenes to stabilize the peso’s value solely when it approaches one of the designated bands; notably, it has only encountered the upper band, not the lower band, since the implementation of this scheme.
Up to this point, the upper band has increased while the lower band has decreased by 1% each month. Analysts indicated that this has artificially supported the peso, given that inflation has persistently exceeded 1% since the implementation of the scheme. Starting in January, Bausili stated, the currency bands will adjust monthly according to the inflation rate recorded two months prior. “The fact that the bands adjust with inflation does not imply that [the exchange rate] will necessarily be higher or lower — that will depend on inflation,” stated Bausili. However, in the initial two months, the peso is expected to depreciate more than it would have under the existing regime. In January, the upper and lower bands will each adjust by 2.5%, reflecting November’s inflation rate. Consultants surveyed by the Central Bank have projected inflation to be approximately 2.1% in December.
Bausili also announced that the Central Bank will initiate the purchase and accumulation of international reserves. It has abstained from taking such action to date, concerned that it might exacerbate inflationary pressures. The bank anticipates a rise in the monetary base — defined as the total of circulating money and deposits — from the existing 4.2% to 4.8% of GDP by December 2026. The requirement could be satisfied through the acquisition of US$10 billion. Should the demand for money increase by 1% of GDP, the resulting purchases would amount to US$17 billion. Two weeks ago, President Javier Milei stated that if the monetary authority “goes out and buys dollars, the amount of money increases, and that generates inflation.” Bausili, however, asserted that the purchases would not lead to an increase in the exchange rate or inflation. “This is being done in response to an increase in the demand for money,” Bausili stated at the conference, noting that “most days, we shouldn’t be surprised that the Central Bank is buying dollars on the foreign exchange market,” although in a volume that “does not affect the proper functioning and stability of the foreign exchange market.” Bausili also announced that the Central Bank would “normalize” the reserve requirements for banks, which had been increased to record levels to contain inflation ahead of the October legislative elections.