Argentina’s Central Bank sold US$53 million on Wednesday in an attempt to prop up the peso. The exchange rate closed at AR$1,474.5, up by more than 5 pesos over Tuesday.

The monetary authority had not intervened in the exchange rate since April 11, when it moved from a crawling peg — daily microdevaluations — to a banded exchange rate scheme.

The Milei government’s economic team announced that switch in lockstep with signoff on a US$20 billion loan with the International Monetary Fund (IMF). It allows the U.S. dollar to float between two values, and the Central Bank only buys or sells dollars to contain the exchange rate if it reaches the lower or upper bands, respectively. On Wednesday, the ceiling of the band was AR$1,474.5.

Gross international reserves closed at US$39.7 billion, US$100 million less than on Tuesday.

The same day, INDEC published data showing that in the second quarter of the year, GDP shrank by 0.1%, with private consumption slumping 1.1%. Year-on-year growth was 6.3%. August’s monthly wholesale inflation was 3.1% — a whole point more than the consumer price index published last week.

The Central Bank enters the marketplace

Shortly after noon, traders began to see offers at AR$1,474.5, then AR$1,474, which they suspected were from the Central Bank.

“It was bound to happen eventually,” said a trader, who spoke on condition of anonymity. “There’s too much time left before the [October 26] elections. And it’s a tough moment. Under this scheme, you’re going to face problems.”

On September 2, amid increased exchange rate volatility, the Argentine government announced that the Treasury would intervene in the currency market. With a firepower then estimated at just US$1.7 billion, the move aimed at preventing the dollar from reaching the upper limit of the currency band, which would trigger Central Bank intervention.

Economist Christian Buteler posted on X that defending the band’s upper limit is “the right thing to do until the exchange rate system is modified.” 

However, he criticized the Treasury for having “burned through” US$500 million over the course of four days, before the exchange rate crossed the threshold, a move he said had “the sole purpose of looking ‘better’ going into the [September 7] elections, which they then lost.” 

Exchange rate tensions are expected to grow until the October 26 national legislative elections.

On Wednesday, Joaquín Cottani, who served as economy vice-minister until his resignation in July 2024, said the administration would “use IMF reserves to stop the run” on the peso.

“There is no possibility of sustaining the currency exchange regime in either the short or medium term,” he told streaming channel Ahora Play. “I would find it hard to believe that, after the elections, there will not be a move towards a traditional monetary policy that controls interest rates.”

Cottani added that he did not understand the currency band, and criticized the administration’s original economic plan for failing to accumulate international reserves.

“This does not fit into any monetary economics textbook,” he added.