MercoPress. South Atlantic News Agency

Argentina's Central Bank to loosen up leash on US dollar

The BCRA is attempting to get back on track with IMF targets

Argentina's Central Bank (BCRA) announced Monday a twitch to its foreign exchange policy, which was welcomed by the International Monetary Fund (IMF). The new strategy seeks to further boost reserves and will become effective in January 2026.

“We welcome recent market access and announced steps to strengthen the monetary and FX framework, rebuild reserve buffers, and advance growth-enhancing reforms. We are working closely with the authorities as they implement these important measures,” IMF Spokesperson Julie Kozack wrote on social media.

In addition to the IMF, these measures were designed to appease private markets to increase the country's payment capacity and prevent the exchange rate from “lagging,” leading to an overvaluation of the peso against the US dollar.

The BCRA now aims to increase the monetary base from its current 4.2% of GDP to 4.8% by minting pesos to buy US dollars in the official market without “sterilizing” (absorbing) those pesos afterward. Every percentage point the monetary base grows relative to GDP is believed to provide a “margin” to purchase approximately US$7 billion to US$10 billion in reserves without fueling inflation, provided the public chooses to hold those pesos rather than trade them for dollars.

BCRA President Santiago Bausili noted that the bank will likely be participating as a buyer in the exchange market “most days.” To prevent the peso from becoming too expensive in real terms, the BCRA is abandoning its fixed 1% monthly increase for the “ceiling” of its currency bands.

Starting in January, the ceiling will be adjusted based on inflation (projected to be a 2.5% jump in January). By allowing the currency to devalue in line with prices, the government hopes to reduce the current account deficit and encourage a more sustainable flow of dollars.

The announcement triggered an immediate response in the financial markets on Monday, with a country risk drop from 623 to 602 points, as investors gained confidence in the government's plan. Additionally, sovereign debt bonds surged by up to 1.7% following the news.

The IMF has repeatedly pressured Argentina to build up its net international reserves—a goal the government has struggled to meet this year. By implementing this “remonetization” excuse to buy dollars, the BCRA is attempting to get back on track with IMF targets while signaling to the market that it is prioritizing “exchange rate sustainability,” it was explained.