BUENOS AIRES: Argentina’s central bank has stepped into the market to prop up the peso for the first time since it implemented a trading band in April, adding to a growing list of setbacks for president Javier Milei.
The monetary authority sold US$53mil on Wednesday, according to its daily report on foreign reserves.
The central bank had earlier disputed a Bloomberg report that the currency had crossed the ceiling of the band.
Until Wednesday, Argentina’s monetary authority hadn’t stepped in directly to shore up the peso since Milei agreed to a US$20bil deal with the International Monetary Fund (IMF) in April.
Under that arrangement, Milei’s central bank lifted some currency controls and agreed to let the peso float freely in an established band that gradually expands 1% a month. Once the peso hits the floor or ceiling of the band, monetary officials are allowed per the IMF deal to directly intervene.
However, Milei has implemented other instruments – such as Argentina’s Treasury selling dollars or foreign exchange futures contracts – to stabilise the peso as it came under increasing pressure in recent months. The government also restricted dollar demand from brokers, with the securities regulator reinterpreting an existing rule that limits them from building up their dollar positions.
The moves reflect the pressure on Milei to keep inflation in check with a steady currency while at the same time maintaining dollar reserves so the government can keep paying its debts.
With mid-term elections just weeks away, the president is trying to project economic stability so he can win more support in Congress to further his agenda.
“At this stage of the game, they must move forward and there is ammunition to defend the band in a first phase,” said Alejandro Cuadrado, a strategist at BBVA in New York.
The pressure is bound to continue as the market turns more volatile heading into Argentina’s national mid-terms on Oct 26, said Paula Gandara, chief investment officer at Adcap Asset Management in Buenos Aires. “The currency is going to stay at the band’s ceiling,” she said.
The peso’s losses couldn’t come at a worse time for Milei’s government. Market sentiment in Argentina is already negative as investors question his wavering political support following a tough electoral defeat in a provincial vote here earlier this month. — Bloomberg
