Argentina Again Tightens FX Rules For Banks As Peso Strengthens
James WhitmanArgentina increased foreign-currency restrictions at commercial lenders yet again, as President Javier Milei’s government ramps up efforts to support the peso and ease inflation ahead of midterm elections.
Argentina increased foreign-currency restrictions at commercial lenders yet again, as President Javier Milei’s government ramps up efforts to support the peso and ease inflation ahead of midterm elections.
The central bank issued new rules Friday in a bid to tighten oversight of the foreign-exchange market and curb volatility, according to a statement published on its website. The peso strengthened as much as 1.4% before paring the advance to almost 0.7% as of 11:45 am local time.
Effective immediately, banks can’t increase their daily spot FX position on the last business day of the month, compared with the previous day’s balance. The measure is aimed at limiting end-of-month balance sheet maneuvers that could amplify demand for dollars and add to pressure on the peso.
Starting Dec. 1, lenders will also be required to comply with the negative global net FX position limit on a daily basis, rather than the monthly average used until now. The change marks a shift toward stricter, day-to-day monitoring of bank exposure to the currency market.
The rule limits the ability of banks to purchase foreign currency in the spot market on the same day their futures contracts mature, underscoring the monetary authority’s determination to curb dollar demand during periods of financial stress.
Milei has been stepping up efforts to defend Argentina’s currency by tightening monetary policy, adding strain on the banking system and the broader economy as he fights inflation. This week, the government rolled over all of its notes in a debt auction. To ensure demand, policymakers increased the share of commercial bank deposits that must be parked at the central bank, effectively forcing them to absorb more government debt.
Those measures drained liquidity and helped shore up a fragile peso that had threatened to reignite inflation. Friday’s move in the market may also be an extension of the post-auction rally.
Milei’s libertarian party is looking to make gains in a Sept. 7 election in the province of Buenos Aires, which is home to nearly 40% of Argentina’s population and consistently votes for the Peronist opposition. Investors will be eyeing those results as a barometer of voter appetite for the president’s shock-therapy polices ahead of national midterms in October.
