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Argentine Central Bank Revamps Strategy to Defend Peso

Ignacio Olivera Doll

(Bloomberg) -- Argentina’s central bank changed rules on foreign currency holdings in the financial system, allowing it to spare foreign reserves when defending the peso.

The regulation published Thursday on the central bank’s website effectively forces some banks to sell dollars, according to a person with direct knowledge of the matter. The move allows the central bank, which has sold $503 million this week in the spot market, to avoid burning even more reserves to shore up the currency.

The Argentine peso plunged 25% during a three-day sell-off that followed the Sunday defeat of President Mauricio Macri to leftist Alberto Fernandez in a key primary election.

Following the publication of the rule, the central bank did not sell any dollars in the spot market Thursday. The Treasury sold $44 million, below the usual amount of $60 million it offers in daily auctions. The peso strengthened 5.5% on Thursday, its first day of gains this week.

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New Strategy

The central bank established a ceiling for foreign currency holdings, in both spot and futures market, equivalent to 5% of banks’ net worth in the previous month, locally known as RPC. Before, financial institutions had a global 5% ceiling for all of their foreign exchange positions, which meant they could hold more dollars if they made up for that by selling foreign currency in the futures market.

That change means some banks will need to sell dollars to comply, said the person. The central bank didn’t immediately respond to a request for comment.

Fernandez, who had long criticized the government for artificially supporting the currency, on Thursday said the peso had reached “fair value” after closing at 60 per dollar the prior day. He added that he asked Macri during a phone call Wednesday to preserve the central bank’s reserves.

(Updates to add charts, daily intervention figures.)

To contact the reporter on this story: Ignacio Olivera Doll in Buenos Aires at ioliveradoll@bloomberg.net

To contact the editors responsible for this story: Juan Pablo Spinetto at jspinetto@bloomberg.net, Walter Brandimarte, Carolina Millan

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