(Bloomberg) — Argentina’s central bank will start selling U.S. dollars on the country’s parallel foreign-exchange market starting on Monday, a move Economy Minister Luis Caputo called a “deepening of the monetary framework.”
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Caputo and President Javier Milley on Saturday began detailing a new strategy to stem the widening gap between Argentina’s official exchange rate and the parallel rates traded in financial markets. Currency controls keep the official peso rate at 919 pesos per dollar, but one of the main parallel rates closed at 1,405 pesos per dollar on Friday.
Government figures released Friday showed monthly price increases began to accelerate slowly in June for the first time since Milley took office on Dec. 10. The annual inflation rate stands at 272 percent, still one of the highest in the world and at an alarming rate.
Caputo, who is attending the Sun Valley, Idaho, conference with Millay, said monetary authorities would sell dollars in one of the parallel foreign-exchange markets, known as blue-chip swaps or contados con liquidación, to offset the release of pesos by buying dollars at the official exchange rate.
“When the central bank buys dollars in the official foreign exchange market, the issuance of an equivalent number of pesos is sterilized by the sale of an equivalent number of dollars in the Contado con Liquidación market,” Caputo said in a series of posts on X.
Caputo said in a radio interview Saturday that starting Wednesday, banks would resell put options – guarantees from monetary authorities that they will buy back bonds if they fall below a certain price – to the central bank, but gave no details.Put options are a new potential source of money creation and a major obstacle to lifting capital controls.
These measures could exacerbate market concerns that the government is grossly overvaluing the official exchange rate by maintaining strict currency controls, and would further impede the central bank’s ability to accumulate the foreign exchange reserves needed to one day lift currency controls, eventually repay the $44 billion to the International Monetary Fund, and rejoin international bond markets.
Officials already expect the central bank to lose $3 billion in reserves in the third quarter. The central bank quickly replaced depleted reserves left by the previous administration earlier this year but has struggled to build them at the same pace in recent days amid a drop in exporters’ overseas sales and concerns that the currency was too overvalued.
In a television interview with LN+ early Saturday morning, Finance Minister Mirey pledged to continue fighting inflation while maintaining a balanced budget.
“We need to get the peso off the streets and the exchange rate gap will narrow,” Millay said of market intervention.
(Updated with radio interview in sixth paragraph.)
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