Argentina sells dollars to curb peso slide as new rules kick in

[carride]

Argentina sells dollars to curb peso slide as new rules kick in

Argentina’s Treasury sold dollars Friday, looking to limit the decline of the peso on the first day that new FX rules kicked in.

batimes.com.ar

Under the new framework, announced in December, the peso’s trading bands will expand at the same rate as monthly inflation instead of being capped at one percent per month.

In October I posted a community script which visualized these upper and lower currency bands. At the time I mentioned the flaws in that script. Well now there is a much better chart that someone has published this week. Reflects the Jan-01 changes of the fx bands following inflation that is discussed in the above posted article

Here is the link to that community chart and source code for review. The screenshots for today. The well documented script comments are copied here too, explaining how it will automatically update every month

Argentina FX Bands — Indicator by EcoValores

EN This indicator plots Argentina's FX band system implemented by the BCRA starting April 11, 2025. It shows the floor and ceiling for the ARS/USD exchange rate. Inside the band, the rate floats. Touching the floor implies USD buying; touching the ceiling implies USD selling. Phase rules: -...

www.tradingview.com

 ════════════════════════════════════════════════════════════
// ENGLISH DESCRIPTION:
// This indicator plots Argentina's exchange rate band system ("Bandas Cambiarias")
// implemented by the BCRA (Central Bank) starting April 11, 2025.
//
// The system defines a floor and ceiling for the ARS/USD exchange rate:
// - Phase 1 (Apr 11, 2025 - Dec 31, 2025): Floor decreases 1%/month, ceiling increases 1%/month
// - Phase 2 (Jan 1, 2026 onwards): Both bands adjust by inflation (with 2-month lag)
//
// When the exchange rate hits the floor, BCRA buys USD (accumulates reserves).
// When the exchange rate hits the ceiling, BCRA sells USD (defends the band).
// Within the band, the rate floats freely ("flotación entre bandas").
//
// For future projections, the indicator assumes next month's inflation equals
// the last known inflation, unless you specify a custom value.
// ═

 

[LuckyLuke]

Personally I don't understand the FX strategy. From what I've ready the shortfall in dollars for the upcoming bond payment will be tapped by various loan instruments. I.e. the Gov doesn't have it.

What seems obvious to me is that Milei is stuck between two unachievable IMF targets. Namely, low inflation, and simultaneous accumulation of dollar reserves. To accumulate reserves, he needs to purchase dollars, but it risks moving the Peso outside the 2% band, which he then must sell later to move it back down.

Perhaps there simply aren't enough Agro/Export dollars arriving to give the necessary depth to the FX market for him purchase dollars without affecting the band.

 

[carride]

Perhaps there simply aren't enough Agro/Export dollars arriving to give the necessary depth to the FX market for him purchase dollars without affecting the band.

Perhaps yesterday’s approval of the EU-Mercosur free-ish trade deal will allow more export income. Finally after trying for the past 25 years.

EU-Mercosur deal wins approval after overcoming French opposition

Majority of the European Union's 27 nations backed the pact at an ambassadors' meeting in Brussels.

www.batimes.com.ar