Argentina’s central bank has sold more than $1bn in just three days to defend the peso, as growing political tensions surrounding President Javier Milei unsettle markets and raise doubts about his economic policies.
According to official figures, the bank offloaded $678mn of its reserves on Friday, following sales of $379mn on Thursday and $53mn on Wednesday. The move came after the peso touched the lower limit of its exchange rate band.
Milei’s Exchange Rate Strategy Under Pressure
The band system was introduced in April, when Milei loosened long-standing currency controls to unlock a $20bn loan from the International Monetary Fund (IMF). The IMF loan now makes up a large share of the central bank’s $39bn reserves, which also include borrowed funds and money protecting deposits.
Luis Caputo, Argentina’s economy minister, stated on Thursday that the government was ready to “sell to the very last dollar” to defend the peso. However, heavy dollar sales have raised investor concerns about whether Milei can sustain the band system.
“This dynamic is not sustainable,” said Gabriel Caamaño, an economist at consultancy Outlier. He warned that the problem lies not only in dwindling reserves but also in the broader economic impact of withdrawing large amounts of pesos from circulation.
Market Confidence Hit by Political Crisis
The peso has lost 9 per cent of its value in the last two weeks, following Milei’s libertarian party’s heavy defeat in Buenos Aires province local elections. The president had presented the vote as a test of his leadership, but the result weakened investor trust in his ability to maintain support for his free-market reforms.
Milei has accused the opposition of stirring “political panic which is spiralling in the market.” But his position has been further weakened by an opposition-controlled congress that has approved spending increases, undercutting his austerity agenda. At the same time, a corruption scandal involving his sister and chief of staff, Karina Milei, has weighed on his approval ratings.
Rising Debt Costs Add to Pressure
Argentina’s sovereign bonds, which had rallied during Milei’s first year in office, have fallen sharply as the crisis deepens. Yields on dollar-denominated debt jumped 5.5 percentage points in two weeks, reaching 14.5 per cent above US treasuries.
Analysts say the government must find a way to restore confidence, either by showing political stability or securing new dollar inflows. Without such measures, the administration could be forced into an earlier change in its exchange rate regime, a move that would damage its credibility and risk worsening its election prospects.
