Argentina’s c. bank to sell dollars in parallel market

Argentina’s central bank will begin selling US dollars in the country’s parallel foreign exchange markets on Monday, aiming to narrow the widening gap between the official and parallel exchange rates.

This strategy, announced by Economy Minister Luis Caputo and President Javier Milei, marks a significant shift in the government’s monetary policy.

The official exchange rate currently sits at 919 pesos per dollar due to government-imposed currency controls. However, in the parallel market, the exchange rate closed at 1,405 pesos per dollar on Friday.

Argentina saw a slight uptick in monthly inflation rates in June, the first increase since President Milei took office in December 2023. Annual inflation remains high at 272 per cent, signaling an ongoing economic crisis.

Caputo explained that the central bank will sell dollars in the blue-chip swap market to balance out the issuance of pesos from buying dollars at the official exchange rate.

This move could also impede the central bank’s efforts to build up foreign reserves, which are essential for removing currency controls and settling debts, such as the $44 billion owed to the International Monetary Fund (IMF).

Milei emphasised the government’s dedication to fighting inflation while maintaining fiscal responsibility. He believes that removing excess pesos from circulation will ultimately lead to a narrower exchange rate gap.

Attribution: Bloomberg