(Bloomberg) — Argentina’s central bank will sell US dollars in the country’s parallel foreign exchange markets starting Monday, a move Economy Minister Luis Caputo called “a deepening of the monetary framework.”
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Caputo and President Javier Milei began to detail a new strategy Saturday that seeks to contain the widening gap between Argentina’s official exchange rate and parallel rates traded in financial markets. While the official peso rate is 919 per dollar due to currency controls, one of the key parallel rates closed Friday at 1,405 per dollar.
Price increases on a monthly basis began to mildly accelerate in June for the first time since Milei took office Dec. 10, according to government figures released Friday. Annual inflation at 272% remains one of the highest in the world and well into crisis territory.
Caputo, who is at the Sun Valley Conference in Idaho with Milei, said the monetary authority will sell dollars in one of the parallel FX markets, known as the blue chip swap or contado con liquidacion, to offset the emission of pesos from purchasing dollars at the official exchange rate.
“If the central bank purchases dollars in the official exchange market, the equivalent emission 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 provided to buy back notes if they fall below a certain price, Caputo said in a radio interview Saturday, without providing details. Puts represent another potential source of monetary issuance and a key obstacle to lifting capital controls.
The steps could likely exacerbate ongoing market concerns that the government is letting the official exchange rate become too overvalued by maintaining strict currency controls. They would also further impede the central bank’s ability to accumulate foreign reserves needed to lift the controls at some point, and eventually repay $44 billion to the International Monetary Fund as well as return to international debt markets.
Government officials already project the central bank will lose $3 billion of reserves in the third quarter. After swiftly building back depleted reserves left by the previous administration earlier in the year, the central bank more recently has struggled to build reserves at the same pace as exporters sell less abroad, voicing concern that the currency is too overvalued.
In a television interview with LN+ earlier Saturday, Milei pledged to keep battling inflation while maintaining a fiscal balance.
“We need to get those pesos out of the street, and it is going to make the exchange gap fall,” Milei said, referring to the market intervention.
(Update with radio interview in sixth paragraph.)
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