No more FX regime change in Argentina, BCRA governor says

There will be no major changes to Argentina’s foreign exchange regime as the existing policy will eventually achieve the objective of liberalising the currency, the governor of the country’s central bank has said.

Speaking at the International Monetary Fund Spring Meetings on April 23, Santiago Bausili said policy-makers had been working gradually to liberalise the country’s exchange controls because they wanted to avoid changing the framework too abruptly.

The Central Bank of Argentina (BCRA) this month changed its currency regime from a crawling peg to a managed float. Argentina’s currency is now allowed to fluctuate against the dollar within a 1,000–1,400 peso range. Previously, the BCRA had fixed the peso to the dollar and only allowed it to depreciate by 1% per month.

Bausili explained that the BCRA had chosen a managed float instead of a free float because citizens had been used to the fixed exchange rate. However, he noted that the upper and lower bands of the floating range would move upwards and downwards respectively by 1% every month.

The governor said this meant the BCRA would not need to change its currency regime again. He added that as the floating range continuously broadened, the managed float would eventually become, in effect, a free float.

Argentina officially moved to a managed float regime on April 14, a few days after signing a $20 billion loan agreement with the IMF. The currency initially weakened but has since rebounded and closed yesterday at around 1,162 pesos to the dollar.

Bausili said he was unsurprised that the peso had not rapidly depreciated after the crawling peg ended. Policy-makers, he said, had been extremely careful in calculating and mitigating the risks involved with changing the currency regime.

“When we took a step towards this normalisation process, we did it because we had already a certain degree of confidence that a step forward would not mean two steps back,” the governor said.

Foreign investors, he said, had seldom looked at Argentina in recent years and so were not familiar with the complex regulatory dynamics underpinning the peso’s value. These investors were therefore surprised to find that the currency remained stable after the BCRA moved to a managed float, he said.

“It didn’t come to our surprise that the top end of the [currency] band was not tested, but for most people it was [surprising],” Bausili said. “Our concern was never there.”