Juan Strasnoy Peyre Argentina’s Central Bank has confirmed that it has expanded its financial dollar intervention in January.
In the first 16 days of the month, the Central Bank (BCRA, by its Spanish acronym) used US$619 million of its reserves to prevent the MEP and CCL dollars from rising. This is the most the institution has spent since it launched this strategy in July.
The goal was to contain upward pressure on the exchange rate gap at the start of the seasonal period of reduced money demand to try to keep devaluation and inflation expectations in check.
The figures, which the monetary authority usually publishes with a delay, were revealed during a presentation in London by BCRA Vice President Vladimir Werning to investors.
One of Werning’s slides showed that between July 2024 and January 16, 2025, the Central Bank had accumulated purchases of foreign currency bonds (using dollars from reserves) totaling US$1.6 billion. This is US$619 million more than it had used by the end of December.
Double December’s figure in a fortnight
The BCRA’s intervention involves purchasing dollar-denominated sovereign bonds (primarily the AL30 and GD30 bonds) using reserve currency and then selling them for pesos. This strategy, introduced last July, aims to sterilize pesos issued to purchase dollars in the official market.
In practice, it is a direct intervention in financial dollars by increasing supply in that market and keeping prices subdued. There is also indirect intervention, since the “blend dollar” policy establishes that 20% of exports are settled in the CCL market.
The US$619 million the BCRA allocated to containing the exchange rate gap in the first half of January alone is almost double the US$325 million used in December, which was previously the month with the highest intervention.
In his presentation, Werning emphasized that this intervention is significantly less than the dollars the Central Bank purchased in the official market (US$1.3 billion in the first 16 days of the month), allowing it to maintain a significant net balance between the operations, mostly used to pay off debt.
However, the growing volumes of intervention reflect increased upward pressure on the exchange rate gap (currently around 13.5% in the case of the CCL) at the start of the year.
Inflation expectations ‘collapse’
On Monday, Werning spoke to investors in London at the 11th BBVA Latin America Conference. His presentation reaffirmed the direction of the economic program and outlined the next steps for the BCRA and the government. He emphasized the priority of “removing [currency] controls and implementing currency competition.”
Werning reviewed the Milei administration’s progress, highlighting the impact of “anchors” deployed in the economic program (fiscal, monetary, exchange rate, and income measures) that he said avoided “hyperinflation.” This year, the government plans to reinforce this by continuing fiscal adjustments, incentivizing carry trade, reducing the pace of devaluation, and capping wage negotiations.
He noted that these measures have led to a “collapse in inflation expectations” across various sectors. A Poliarquía consultancy survey showed public expectations of inflation declining to levels unseen in two decades. Similarly, analysts revised their inflation projections downward, with the Central Bank’s Market Expectations Survey forecasting a steady decrease in monthly inflation, from 2.7% in December to 1.8% in June.
Additionally, he said that investor expectations, reflected in peso-denominated Treasury bond prices and dollar futures, align with significant inflation deceleration and a reduction in the devaluation pace from 2% to 1% per month starting in February. A graph presented by Werning showed the breakeven inflation rate falling to 2% in January, 1.6% in February, 1.4% in March, and 1.3% from April to August.
Lifting Argentina’s currency controls?
Werning discussed the government’s priorities for what it calls stage three of its plan, including “removing controls and implementing currency competition.” This aligns with the Central Bank’s recent announcement that debit card and QR code payments in dollars will be enabled for all merchants starting in March and April, respectively, as part of the move toward currency competition.
However, economists agree that true currency competition is unlikely under current exchange controls. Analysts believe one short-term goal of these measures is to retain dollar deposits within the system, essential for generating foreign-currency loans to the private sector, a key source of dollar supply in recent months.
Werner also said that “capital account inflows (corporate issuances and household repatriations) will support the current account.” This has turned negative due to factors including a surge in tourism abroad, driven by the appreciation of the peso.
Looking ahead, Werning stressed that lifting exchange controls requires reduced inflation inertia and stronger reserves, two points that Economy Minister Luis Caputo and Milei have both made recently. Yet, following the Treasury’s recent US$835 million currency purchase from the Central Bank in the face of upcoming debt maturities, net reserves are more than US$10 billion in the red, measured using IMF methodology (which excludes Bopreal maturities over the next 12 months and the government’s deposits).
The IMF’s conditions
The government is counting on the new IMF program under negotiation to replenish reserves, a critical step toward lifting controls. Following a meeting between Milei and IMF head Kristalina Georgieva, it was announced that an IMF mission would visit Buenos Aires next week to expedite discussions.
As the U.S. political climate shifts with Donald Trump’s presidency, the key question is what conditions the IMF will impose for increasing debt (reportedly valued at around US$11 billion), particularly regarding the exchange rate.
The government is hoping to strengthen its reserves, partly so it can exit exchange controls — but also to strengthen its exchange policy. The IMF, meanwhile, believes the exchange rate should be higher. Could they reach an agreement that doesn’t include a devaluation?
