In a major change to its monetary policy, Argentina’s Central Bank announced on Monday that it will start making monthly adjustments to its currency exchange bands based on the country’s inflation rate. This decision ensures a quicker devaluation of the peso and marks a significant shift from its previous approach of building foreign reserves.
Central Bank President Santiago Bausili explained these measures during a press conference which will take effect in January 2026. This change deepens the economic adjustment program initiated by libertarian President Javier Milei, closely following long-standing suggestions from the International Monetary Fund (IMF).
Bausili described the changes as consistent with lowering inflation. This statement comes during a cost-of-living crisis that has reduced wages and savings for millions of Argentines. He highlighted the recent stabilizing political situation after the government gained in October’s mid-term elections, where it became the largest single group in the Lower House, as allowing for this decision.
The IMF quickly supported the new policy. The fund is a key creditor, with a $44 billion program that has influenced Argentina’s economic approach for years. The IMF has consistently pushed for both reserve growth and a more flexible, market-driven exchange rate.
“We are working closely with the Argentine authorities as they put these important measures into action,” wrote IMF spokesperson Julie Kozack on social media during the announcement.
While Bausili acknowledged the collaboration with the IMF, he aimed to emphasize that the plan was driven by domestic needs. “We are defining the program,” he stated. He confirmed that the U.S. Treasury, which provided a $20 billion credit line before the October elections, was informed about the new direction. Bausili suggested that the U.S. interest stemmed mainly from its status as the IMF’s largest shareholder, rather than direct involvement in Argentina’s decisions.
Argentina has a banded exchange rate system, established last April. This system allows the peso to fluctuate between a minimum and maximum value against the U.S. dollar. The Central Bank intervenes only when the currency reaches either boundary. So far, market forces have consistently tested the upper limit, leading to periodic devaluations.
Under the previous rules, these bands adjusted by a fixed 2% per month. Financial analysts have criticized this rate as artificially low compared to the monthly inflation, which has often exceeded double digits. This difference created a growing gap between the official exchange rate and informal market rates, distorting trade and prompting capital flight.
The new system will link the peso’s depreciation directly to inflation. Starting in January 2026, the bands will adjust monthly based on the inflation rate from two months earlier. Bausili argued that this connection does not determine the exchange rate level, but simply ensures it reflects price changes.
“The fact that the bands adjust with inflation does not mean that the exchange rate will be higher or lower. That will depend on inflation,” Bausili said.
However, the initial adjustment will likely speed up the peso’s decline. The first monthly change in January will be 2.5%, matching November’s inflation rate. Private sector forecasts expect December’s inflation at around 2.1%, suggesting a similar pace of devaluation will follow.
In a potentially more controversial step, the Central Bank announced it will start buying and accumulating foreign reserves regularly. This practice had been avoided for months due to concerns that printing pesos to buy dollars could lead to inflation.
Bausili stated these purchases are warranted by an expected rise in money demand as the economy stabilizes. He claimed the planned volume of interventions would not disrupt stability in the foreign exchange market or increase inflation. The Bank anticipates the monetary base will grow from 4.2% to 4.8% of GDP by December 2026, which could require acquiring up to $17 billion in reserves.
This new approach seems to contradict recent warnings from President Milei, a vocal critic of increasing central bank money supply. Just weeks ago, Milei warned that central bank purchases of dollars would raise the money supply and could lead to inflation, a key point of his libertarian economic views.
Bausili addressed this contradiction by asserting that the size of the planned operations would remain manageable and non-disruptive. This announcement comes as Argentina faces the social effects of Milei’s strict austerity measures, which have included significant cuts to public spending, ending subsidies, and laying off state workers. Although monthly inflation has decreased from its peak, it continues to be among the highest in the world, and poverty rates are expected to increase sharply.
Economists from center and left-leaning think tanks have previously cautioned that any rapid reserve building policy could add further downward pressure on the peso or force interest rates higher, hindering any economic recovery. The decision to link the exchange rate to inflation also sets a path for ongoing depreciation, risking inflationary pressures from rising costs of imports.
Additionally, Bausili announced that the Central Bank will start normalizing reserve requirements for commercial banks. These requirements had been raised to unprecedented levels before the October elections as an emergency measure to control liquidity and inflation. Gradually easing these requirements could boost lending but might also increase pesos in an economy still trying to stabilize price expectations.
The political opposition quickly criticized the plan. Representatives from the Peronist coalition, Union por la Patria, stated that the policies deepen a recessionary trend that harms the working class. Social movements and labor unions, already planning protests against the government’s economic measures, are likely to see the accelerated devaluation as a threat to purchasing power.
Independent economic analysts note that while adjusting the exchange rate to match inflation may correct market distortions, it does not tackle the fundamental causes of Argentina’s inflation, which they link to structural problems, reliance on energy imports and ongoing fiscal issues.
The success of the new system will depend on the government’s ability to keep reducing the fiscal deficit and on the unpredictable nature of global markets. With the IMF’s approval, the Milei administration has shown its commitment to meeting requirements set by international creditors. However, the broader societal impact of these technical monetary changes will emerge in the months ahead, reflected in supermarkets, wage negotiations and the fragile balance of millions of household budgets.