Argentina's Bold Move to Combat Inflation by Selling U.S. Dollars

Argentina's central bank plans to sell U.S. dollars in parallel markets to combat inflation. Economy Minister Luis Caputo announced this strategy, which aims to stabilize the money supply and reduce inflation. The move comes after a recent uptick in inflation and aims to close the gap between official and parallel exchange rates.

In a decisive move to tackle inflation, Argentina's central bank will begin selling U.S. dollars in the nation's parallel foreign exchange markets, the government revealed on Saturday.

Economy Minister Luis Caputo declared the new policy via messaging platform X, stating it would "deepen the disinflation process." Starting Monday, when the central bank issues pesos to buy U.S. dollars on the formal market, it will balance the monetary base by selling an equivalent amount on the parallel "CCL" market, Caputo explained.

"No more pesos are being printed in Argentina by any means. This is a historic development," Caputo emphasized in a radio interview, adding, "We were beating inflation by a few points, and this is the 'knock out' blow." The new strategy follows data showing a recent increase in monthly inflation, ending a five-month streak of slowing inflation.

The government's plan under President Javier Milei aims to stabilize the money supply, reduce inflation, and narrow the widening gap between official and parallel exchange rates. The Argentine peso has been sliding in parallel markets since the beginning of the year. At the latest close, the official rate was 919.5 pesos per dollar, while the "CCL" rate was 1,416.2, and the black market "blue" rate fell to a historic low of 1,500 pesos per dollar.

President Milei celebrated the announcement from the Sun Valley Conference in Idaho, highlighting that the monetary base is no longer increasing. He stated that the plan would "accelerate the deflation process." Under Milei's leadership, inflation has dramatically slowed, dropping from 25.5% in December to 4.2% in May, with a slight uptick to 4.6% in June.

(With inputs from agencies.)