Argentina props up peso as crisis roils President Javier Milei
Authorities intervene directly in market for first time since currency’s partial float in April
Ciara Nugent in Buenos Aires
Argentina’s central bank has propped up the country’s tumbling peso, marking its first direct intervention since President Javier Milei partially floated the currency in April as a political crisis roils the libertarian government.
The monetary authority sold $53mn on Wednesday, according to its daily report on foreign currency reserves, as the peso fell to the lower limit of its exchange rate band, currently about 1,475 pesos to the dollar.
The sale was triggered under a scheme that allows authorities to intervene in the peso when the currency hits the bottom of the band.
The rules were adopted five months ago as part of a $20bn loan deal with the IMF.
Earlier on Wednesday, figures published by the national statistics institute showed Argentina’s economy shrank 0.1 per cent in the second quarter of the year compared with the first, halting a nascent recovery from Argentina’s long-running crisis.
Meanwhile, Milei’s government has struggled to contain the fallout of a shock landslide defeat for his party at high-profile local elections in Buenos Aires province this month and a corruption scandal involving his sister and chief of staff Karina.
The political troubles have unnerved investors.
The peso has plunged about 12 per cent in the past month, accelerating a slide that began in July, when the central bank mishandled a phaseout of short-term lending instruments.
Other measures to stabilise the peso, including raising interest rates and bank reserve requirements, have had limited success.
They have also weighed on economic activity, which pollsters have said could hurt the government ahead of crucial midterm elections in October.
“The government is running out of tools to defend its exchange rate regime,” said Amilcar Collante, an economics professor at La Plata National university.
“It is sort of trapped, at least until elections.”
Analysts have warned that large sales of scarce hard currency reserves to protect the peso would hurt Milei’s long-term plan to return Argentina to global capital markets and wean the country off IMF loans.
Borrowing costs are rising as bondholders grow nervous that the government will struggle to make billions of dollars in sovereign debt repayments due in the next year.
The closely watched gap between yields on Argentina’s dollar debt and those on US treasuries has widened 2.6 percentage points since September 7, when Milei’s party lost badly at provincial elections in Buenos Aires province.
It now stands at 11.7 per cent.
The government has launched negotiations with opposition governors, who hold sway over legislators, in a bid to shore up support for Milei’s flagship austerity programme and free market reforms.
Yet the lower house of congress on Wednesday overrode Milei’s veto of two laws that boost hospital and university funding with a two-thirds majority, extending a string of legislative defeats for the government in recent months.
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