Argentina’s central bank has spent more than $1bn in just three days defending the peso, as mounting political turmoil around President Javier Milei unsettles investors and raises doubts over the future of his exchange rate policy.
Official data show the central bank sold $678mn of hard currency on Friday alone, in addition to $379mn on Thursday and $53mn on Wednesday. The intervention came after the peso touched the floor of its exchange rate band — a mechanism introduced in April when Milei loosened long-standing capital controls as part of a $20bn deal with the International Monetary Fund. That IMF financing now makes up the bulk of Argentina’s $39bn in reserves, including borrowed funds and backing for consumer deposits.
Economy minister Luis Caputo vowed this week that the government would “sell to the very last dollar” to defend the peso. But the rapid depletion of reserves has alarmed markets. “This dynamic is not sustainable,” said Gabriel Caamaño, an economist at Outlier consultancy. “Even if they don’t immediately run out of dollars, withdrawing so many pesos from circulation to buy hard currency will hit economic activity hard.”
The peso has fallen 9 per cent in the past two weeks, triggered by Milei’s libertarian party’s heavy defeat in Buenos Aires province elections — a vote he had framed as a referendum on his leadership. The loss has cast fresh doubts on his ability to deliver his radical free-market reforms. Peso volatility, a hallmark of Argentine politics during election cycles, has surged in the run-up to crucial midterms scheduled for October 26.
Milei accused the opposition on Friday of trying to destabilize his government by “causing political panic which is spiralling in the market.” Yet his administration has faced mounting headwinds. An opposition-controlled congress has pushed through spending increases that threaten his austerity program, while a corruption scandal involving his sister and chief of staff, Karina Milei, has further eroded his approval ratings.
Investor sentiment has soured sharply. Argentine sovereign bonds, which had rallied during Milei’s first year in power, have slumped as reserve sales and political uncertainty drive fears about debt sustainability. Yields on the country’s dollar bonds have surged by 5.5 percentage points in the past two weeks, climbing to 14.5 percentage points above US Treasuries.
Analysts told the Financial Times that unless Milei can restore political confidence or secure fresh inflows of dollars, the pressure on the peso will force him to abandon the band system. “Otherwise,” Caamaño warned, “they would be forced to bring forward a change in their exchange rate regime, which would be very damaging for their credibility and potentially for their election performance.”
