Turbulence in the Argentine markets continued on Thursday as the  Central Bank sold US$379 million to stabilize the wholesale exchange rate at AR$1,474.5. Bonds and shares saw falls of over 10%, while the parallel rates soared.

On Wednesday, the monetary authority had to deplete US$53 million to prop up the peso after the dollar first breached the currency band’s ceiling. It was the second time they intervened in the exchange rate since April 11, when it moved from a crawling peg — daily microdevaluations — to a banded exchange rate scheme.

Milei is enduring his worst stretch since coming into office. Over the last month, the government has faced corruption allegations, a congressional defeat, and a lost election. This week’s market volatility comes on the heels of more legislative setbacks, as the lower house voted to overturn two presidential vetoes, while the Senate voted to reject another one. 

What is the government doing?

The Milei government’s economic team announced the exchange rate change in lockstep with the signing of a US$20 billion loan with the International Monetary Fund (IMF). In this new scheme, the U.S. dollar“floats” between two values, while the Central Bank is only allowed to buy or sell dollars to contain the exchange rate if it surpasses the lower or upper band. 

“Intervention criteria changed [on Thursday],” economist and investor Christian Buteler wrote on X. “[On Wednesday], intervention was triggered once the band was surpassed. Now, the band limit is rounded down and intervention occurs within the band.”

On Thursday, the ceiling of the band was AR$1,474.8. But because the criteria had changed, instead of waiting for the rate to exceed that number, the government started selling once it hit AR$1,474.50.

The MEP dollar accelerated its rise, with a 2.7% increase to AR$1,536.51. The blue-chip swap rate (CCL) rose 2.8% and now stands at AR$1,564.1. The informal or “blue” dollar exchange rate traded at AR$1,510.

Bonds also took sharp declines. All sovereign dollar-nominated bonds fell, notably AE38C and AE38D (-13.3% each) and AL41C (-12.6%). JPMorgan’s EMBI or country risk index, which calculates the possibility of default, exceeded 1,400 basis points.

The S&P Merval index, which measures the leading stocks in the Buenos Aires Stock Exchange, fell by 4.9% in pesos.

Argentine businesses on Wall Street, traded through the American Depositary Receipts (ADRs), also plummeted, with state-owned energy giant YPF (-10.4%), communication company Telecom (-9.2%), and gas transporter Transportadora de Gas (-8.8%) taking the hardest hits.

Experts weigh in

According to a report by the 1816 consulting firm, the Central Bank and the Treasury face maturities for US$34 billion between this month and December 2027, excluding payments to the IMF. The brief went on to say that, in order to reach that goal, the administration would have to purchase close to  US$1 billion per month in reserves. 

“Naturally, the figures will worsen by an amount equivalent to what the government sells in foreign currency between now and the election.”

The 1816 report said the administration would need to modify its currency scheme to buy reserves, giving three scenarios — one with a flexible exchange rate regime that abandons currency bands altogether, another with a fixed exchange rate regime after an initial jump, and reinstating the exchange restrictions known as the “cepo.”

Another figure who weighed in was former vice-economy minister Joaquín Cottani. In an interview published on Wednesday, he revealed that the administration’s plan consisted of dollarizing the economy without purchasing international reserves. He added that he ended up resigning his post because he “did not understand” how the government intended to achieve that objective. 

Earlier on Thursday, presidential spokesman Manuel Adorni criticized the lower house for voting against Milei’s vetoes of laws funding public universities and pediatric hospitals the day prior. He suggested “suspending the entire budget of the legislative branch for four months” to pay for the initiatives.

Peronist deputy Miguel Ángel Pichetto took up the gauntlet in a post on X, where he said that with what the Central Bank spent today, the government could have secured “four months of university financing.” “And the problem is Congress? I remind you that it is an institution of democracy.”