Summary: Argentina's monetary authorities have stepped back from the most aggressive daily dollar buying after a sharp inflow of foreign currency pushed gross reserves up by about $3 billion year-to-date. Officials face a trade-off: adding dollars to the central bank's stockpile supports external cushions and IMF commitments, but it also pumps pesos into the domestic economy, a dynamic that could undermine efforts to keep inflation in check.
Dollar inflows have been substantial, driven by a commodity export boom and by issuance of corporate bonds. Those flows have allowed the central bank to rebuild reserves toward levels discussed with the International Monetary Fund. Still, the mechanics of reserve accumulation present a policy challenge: purchasing dollars to increase foreign-exchange holdings raises the supply of pesos circulating in the economy, which could feed inflationary pressures. Top aides in President Javier Milei's administration are reportedly cautious because limiting a return to high inflation remains their principal policy achievement.
Central bank officials say they expect inflows to stay sufficiently strong to permit larger purchases later in the year, Bloomberg reported on Thursday. For the immediate term, however, policymakers are operating under constraints created by weak "genuine" demand for pesos in an economy showing uneven growth.
Signs of stress in domestic activity include wage gains that are weak once adjusted for inflation, rising loan delinquency rates and banks that are tightening lending standards and becoming more selective in their credit decisions. Those developments help explain why monetary authorities have not stepped up dollar purchases despite the availability of foreign currency inflows.
Economy Minister Luis Caputo said in a local radio interview that the economy should begin accelerating in May and June, a timetable he offered even as President Milei has said recovery signs have been visible since the start of the year.
Data posted on the central bank's website show that daily dollar purchases averaged $124 million this month, down from an average of $138 million in April, although buying has ticked up in recent days. Central bank President Santiago Bausili acknowledged this week that domestic money demand has not recovered as quickly as officials had anticipated in a December presentation, noting that recovering money demand "was an assumption, not a promise."
Data points:
- Gross reserve accumulation: approximately $3 billion this year.
- Average daily dollar purchases: $124 million this month, down from $138 million in April.
- Primary drivers of inflows: commodity export boom and corporate bond sales.