Milei dials back grip on peso as Argentina outlook improves

Argentina’s Central Bank cut its one-day peso repo rate by 300 basis points to 22 percent, according to people with direct knowledge of the matter, as markets stabilise after President Javier Milei’s midterm election win.  

The new rate was reported to traders Wednesday through the BYMA, the country’s main stock exchange, the people said, asking not to be named as the information isn’t public. The one-day repo has become one of the bank’s key policy tools as Milei’s government navigates persistent inflation pressures and swings in the exchange rate. 

Argentina’s currency edged up 0.1 percent on Wednesday to close at 1,452 per US dollar after strengthening 1.9 percent in the previous session. The country’s dollar bonds were up across the curve, with notes due in 2035 up 0.8 cent to above 71 cents on the dollar, among the best in emerging markets, according to indicative pricing compiled by Bloomberg.

Investor sentiment has brightened in Argentina since Milei’s party more than doubled its representation in Congress, which bolstered expectations for more fiscal tightening and pro-market reforms. Peso assets and Argentine risk gauges, which have been highly volatile since a local election loss in September, have stabilised since the October 26 vote.

Policy-makers are pairing rate cuts with an easing of bank reserve requirements to smooth money-market conditions, as part of a broader effort to anchor disinflation without choking liquidity. Recent changes to bank compliance rules and a steadier official foreign exchange strategy aim to push short-term rates lower without reigniting volatility.

Provinces and companies in Argentina are lining up to tap global markets in coming weeks amid the brightened sentiment, opening a window for debt issuance that could channel much-needed dollars into the FX market. Fresh hard-currency inflows from corporate bonds should lend near-term support to the battered peso. 

The timing is key as farm exports have ebbed after incentives pulled a rush of sales into September, leaving a shortfall that required both intervention from both Milei’s team and the US Treasury as Argentines sought safety in the dollar ahead of the midterm election. 

Analysts, however, still see the peso as overvalued and Milei has given no indication he’s willing to make major changes to the trading bands he agreed to as part of Argentina’s latest deal with the International Monetary Fund. The band expands in each direction each day and its weakest limit stood at 1,498.5 pesos per dollar on Wednesday.

The libertarian leader and Economy Minister Luis Caputo are headed to the United States this week, where they’ll meet with a select group of investors and corporate executives in New York on Friday. Milei is also slated to speak at a business conference in Miami on Thursday. ​