Argentina Adjusts Peso's Exchange Rate Bands Amid Inflation

President Javier Milei's government announced on Monday that Argentina will adjust the peso's exchange rate bands to align with inflation as part of a new monetary framework aimed at boosting the Central Bank's international reserves.

The Central Bank of Argentina, known as BCRA, stated that the peso's trading bands will now be linked to monthly inflation rates. Argentina has maintained a semi-floating exchange rate regime since April, easing access to foreign currency.

Currently, the peso trades within strict bands, which have helped in controlling inflation but are said to contribute to an overvalued peso. As of Monday, the lower band was set at 921 pesos per US dollar, while the upper band was at 1,518 pesos.

Starting January 1, 2026, both the ceiling and floor of these bands will adjust monthly based on the latest inflation figures from the national statistics institute, INDEC. Monthly inflation in 2025 has fluctuated between 1.5 percent and 3.7 percent, with November's inflation recorded at 2.5 percent.

Economist Ricardo Delgado commented that the adjustments indicate an upward trend in the wholesale exchange rate, vital for export, import, and debt payment calculations. The Central Bank also announced a program for international reserve accumulation, aiming to increase the monetary base from 4.2 percent to 4.8 percent of GDP by December next year.

This increase could facilitate the purchase of around $10 billion, depending on market conditions, with potential reserve accumulation rising to $17 billion if money demand increases further. The International Monetary Fund has welcomed these measures, emphasizing the need for Argentina to strengthen its reserve position as part of a $20 billion loan program, of which $14 billion has already been disbursed.

Economy Minister Luis Caputo acknowledged the IMF's support, highlighting the importance of these measures for economic stability. Earlier, President Milei noted that the exchange rate bands aim to limit volatility in the currency market, with the long-term goal of allowing the dollar to float freely.

Additionally, Argentina recently announced a $1 billion bond sale, marking its return to the local dollar debt market after over seven years.