Argentine Peso Breaches Trading Range, Depreciates 0.4%

On Wednesday, the Argentine peso experienced a significant decline, breaching the government-set trading range for the first time. This development could disrupt the government's strategies aimed at controlling inflation and accumulating foreign exchange reserves.

The peso depreciated by nearly 0.4% against the U.S. dollar, reaching 1,474.50 pesos per dollar, surpassing the upper limit of the trading range set at 1,474.345 pesos per dollar. This trading range is part of a 200 million dollar agreement reached between Argentina and the International Monetary Fund in April.

The government, under the leadership of President Javier Milei, has implemented measures such as tightening liquidity, selling dollars in the futures market, and restricting dollar purchases to prevent the peso's depreciation. With the trading range now breached, the central bank is authorized to directly intervene in the spot market, which will involve using precious foreign exchange reserves.

An investment portfolio manager from Vontobel Asset Management warned that defending the trading range could now be costly. "They do not want to hold on to it at any cost," the manager stated. "It would be better to adjust the range upwards. They need to lower local interest rates to avoid a recession and maintain fiscal sustainability. As long as it is done in an orderly manner, it is fine. It is also important to avoid depleting foreign exchange reserves in a battle they are unlikely to win."