President Javier Milei has laid out specific guidelines for the Inter-American Council of Trade and Production (CICYP) in mid-May. He emphasized the need to clean up remunerated liabilities and other commitments of the Central Bank in order to stop monetary emission taps. This, combined with a fiscal surplus, would put an end to endogenous issuance and lead to a flexible exchange rate.
The Central Bank responded to these directives by reducing the reference interest rate from 50% to 40% annually, and transferring short-term debt to Treasury bills and bonds. This move led to a decompression of short-term debt in pesos, increasing Treasury debt valued in dollars. The market responded with a jump in free dollars, a drop in bond and share prices, and an increase in the country risk rate to 1,443 points.
To address the rise in free dollars and manage inflation fears, official intervention occurred when the blue dollar touched $1,280. The market has responded positively to the stability of the exchange rate enabled by factors such as the blend dollar, liquidation of harvest, and official interventions. The Caputo scheme aims to lower inflation and secure dollars to meet debt maturities by the end of the year while maintaining exchange rate stability. Despite these challenges, the administration is confident in the effectiveness of this strategy.
