Argentina parallel peso strengthens as Milei starts intervention

The Argentine peso is on pace for its biggest one-day gain in the parallel market since President Javier Milei took office as his government began to sell dollars in an effort to further tame inflation.

The parallel peso gained more than 8.1 percent to trade at 1,291 pesos per dollar as of 4pm in Buenos Aires. Milei’s government started intervening in the parallel market on Monday to bridge the gap with the official rate, which is set at 922 pesos per dollar, and bring down inflation running at roughly 270 percentannually. 

The government hasn’t announced how much it sold in the parallel market.  

While the move was on track to shrink the gap between Argentina’s different exchange rates on Day 1, it risks fanning concerns that the policy is a short-term fix. In the long run, investors say, it will slow the rate at which the government is accumulating foreign reserves, a tool Milei relies on to pay foreign creditors and an essential step before lifting capital controls.  

“It’s another detour in the FX transitory regime,” said Alejandro Cuadrado, a Latin America strategist at Banco Bilbao Vizcaya Argentaria SA. “Intervention is not sustainable, less so if its at the expense of reserves.”

Sovereign dollar bonds were among the worst performers in emerging markets Monday with notes falling at least 0.50 cent on the dollar across the curve, according to indicative pricing compiled by Bloomberg.

The intervention policy was announced Saturday by Milei and Economy Minister Luis Caputo, who said it would offset the emission of pesos created from purchases of greenbacks in the official exchange market.

While the peso floats freely, the official exchange rate is strictly controlled by the Central Bank.