BUENOS AIRES – The Central Bank of the Argentine Republic (BCRA) said on Monday that it intervened in the foreign exchange market to reduce the supply of pesos, selling dollars even though the national currency was in the so-called non-intervention zone.
The BCRA’s Monetary Policy Committee (COPOM) said in a statement that the financial institution could sell US dollars “even if the exchange rate falls below 51.448 pesos,” with the amounts and frequency depending “on market dynamics.”
If the exchange rate moves above this level, the BCRA will increase the daily dollar sales by $150 million to $250 million.
The central bank, moreover, is keeping the option open of engaging in “additional interventions to counteract episodes of excessive volatility if it considers it necessary.”
The pesos generated by the sales will be debited from the target money supply goal set by the BCRA.
The COPOM confirmed that it would not purchase currency until June if the exchange rate stays below 39.755 pesos.
The measures are being taken to reduce the number of pesos in circulation and improve the foreign exchange market’s operation.
“The COPOM considers that the BCRA should bolster the contractionary bias of monetary policy by intervening in the foreign exchange market to more aggressively reduce the quantity of pesos and, in this way, contribute to the adequate operation of said market,” monetary policy makers said.
The BCRA is thus modifying the policy it adopted in October that set intervention and non-intervention zones in the foreign exchange market, introducing a system based on money supply growth that was, in part, rooted in the agreement signed with the International Monetary Fund (IMF) setting limits on forex market intervention.
The policy announcement comes after a week in which the drop in value of the peso against the US dollar spiked.
The US currency was up 104 percent in value against the peso in 2018 and has gained 18.9 percent against the Argentine currency year to date.