Argentina’s central bank recently announced a new strategy to combat inflation and stabilize the country’s money supply. The move, spearheaded by Economy Minister Luis Caputo, involves selling U.S. dollars in the parallel foreign exchange markets to help deepen the disinflation process. This article will analyze the implications of this strategy and its potential effects on Argentina’s economy.
In an effort to address the ongoing issue of inflation, the central bank will begin selling U.S. dollars in Argentina’s parallel exchange markets. This decision comes after a five-month streak of slowing inflation ended in June, signaling the need for new measures to stabilize the money supply and bring down inflation rates. The government aims to close the gap between the official and parallel exchange rates, which have been diverging due to strict currency controls in the country.
Starting Monday, the central bank will issue pesos to buy U.S. dollars on the formal exchange market. To balance Argentina’s monetary base, the bank will sell an equivalent amount of dollars on the parallel “CCL” exchange market. This approach marks a significant shift in the country’s economic policies, as Caputo stated that there are no more pesos being printed in Argentina by any means. The goal is to accelerate the deflation process and provide a “knock out” blow to inflation, according to the minister.
The Argentine peso has been experiencing depreciation in the parallel markets since the beginning of the year. The official exchange rate stands at 919.5 pesos per dollar, while the “CCL” rate is at 1,416.2 pesos per dollar. Moreover, the black market “blue” rate hit a historic low of 1,500 pesos per dollar. The new strategy aims to stabilize the exchange rates and reduce the widening gap between the official and parallel markets, providing a more accurate reflection of the country’s economic situation.
President Javier Milei expressed his support for the central bank’s strategy, highlighting the importance of stabilizing the monetary base. Since Milei took office last year, inflation has decreased significantly, from 25.5% in December to 4.6% in June. The president emphasized the power of this new approach in accelerating the deflation process and achieving economic stability in Argentina.
Argentina’s central bank’s decision to sell U.S. dollars in the parallel exchange markets represents a bold move to combat inflation and stabilize the country’s money supply. The implementation of this new strategy is expected to have a significant impact on the exchange rates and inflation rates in the country, setting the stage for a more stable economic environment. President Milei’s endorsement of the plan signals a unified effort to address the economic challenges facing Argentina and propel the country towards sustainable growth.