President Javier Milei\u2019s government announced on Monday that it will adopt a new monetary framework and adjust the peso\u2019s trading bands as part of a broader plan to build up the Central Bank\u2019s international reserves.<\/p>\n
In a statement, the Central Bank (BCRA) said it will link the peso\u2019s trading bands to monthly inflation. Argentina has operated a semi-floating regime for the national currency since April, when the government eased access to foreign currency.<\/p>\n
Argentina currently allows the peso to trade within a strict set of bands, a policy that has helped rein in inflation. Analysts say, however, that it has also contributed to an overvalued peso that is weighing on the economy.<\/p>\n
At present, the Central Bank does not intervene in the market unless the exchange rate reaches either the upper or lower limit of the band against the US dollar. Under the current framework, the band\u2019s ceiling rises and its floor falls by one percent each month.<\/p>\n
That system, however, will change next year, the Milei administration said on Monday.<\/p>\n
\u201cFrom January 1, 2026, the ceiling and the floor of the exchange rate band will evolve each month in line with the most recent monthly inflation figure,\u201d Central Bank Governor Santiago Bausili said at a press conference, referring to data published by the national statistics institute, INDEC.<\/p>\n
So far in 2025, monthly inflation has ranged between 1.5 percent and 3.7 percent. November inflation stood at 2.5 percent.<\/p>\n
As of Monday, the lower bound of the band was 921 pesos per US dollar, while the upper bound stood at 1,518 pesos per greenback.<\/p>\n
The announcement shows that \u201cthere will clearly be an upward path for the wholesale exchange rate, which is what determines exports, imports and debt payments,\u201d economist Ricardo Delgado said.<\/p>\n
\u201cIt is better than what we\u2019ve had until now, but it is still insufficient for sectors that produce and export,\u201d Delgado told the TN television channel, referring to the impact of an overvalued peso on industry and producers.<\/p>\n
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IMF reaction<\/strong><\/p>\n Alongside changes to the peso\u2019s trading bands, the Central Bank also announced that it will roll out a new programme to build up international reserves.<\/p>\n In a statement, it said that from January 1 a phase of remonetisation and reserve accumulation will begin under what it described as \u201ca consistent accumulation programme\u201d.<\/p>\n \u201cThe Central Bank will begin a programme of international reserve accumulation consistent with the evolution of money demand and foreign exchange market liquidity,\u201d the institution said.<\/p>\n It forecast that the monetary base will increase from 4.2 percent to 4.8 percent of GDP by December next year, allowing for the purchase of around US$10 billion, subject to market conditions.<\/p>\n The statement added that, if demand for money were to rise by a further one percent of GDP, reserve accumulation could increase to as much as US$17 billion \u201cwithout requiring sustained sterilisation efforts.\u00bb<\/p>\n The policy shift was welcomed by the International Monetary Fund (IMF), which has repeatedly called on Argentina to strengthen its international reserve position.<\/p>\n Argentina\u2019s exchange rate band system was agreed with IMF staff as part of a US$20 billion loan programme, of which US$14 billion has already been disbursed.<\/p>\n \u00a0<\/p>\n ‘Important measures’<\/strong><\/p>\n \u201cWe welcome the recent market-opening measures and the steps announced to strengthen the monetary and exchange rate framework, rebuild reserves and promote reforms that drive growth,\u201d IMF spokesperson Julie Kozack wrote on X on Monday.<\/p>\n \u201cWe are working closely with the Argentine authorities on the implementation of these important measures,\u201d she added.<\/p>\n Economy Minister Luis Caputo thanked Kozack for her remarks on the same social media platform, in a message that was also reposted by Milei.<\/p>\n A few days earlier, Kozack had said that \u201ca more ambitious path of reserve accumulation will be needed in Argentina \u2014 this will help the country better absorb shocks and facilitate a timely return to international capital markets\u201d.<\/p>\n \u201cAt this point, meeting the year-end reserve target will be challenging, but it is essential that it is achieved within the period envisaged,\u201d the IMF spokesperson said.<\/p>\n Earlier this month, the President said that \u201cthe bands are there to put a limit on volatility, so that Argentines wake up in the morning and the exchange rate is not all over the place\u201d.<\/p>\n Milei has said the ultimate goal is for the dollar price to float freely.<\/p>\n Last week, Argentina announced a US$1 billion bond sale, marking its return to the local dollar debt market after more than seven years.<\/p>\n \t\t\t\t\t\t\t\t<\/p>\nrelated news<\/h6>\n<\/p>\n<\/section>\n