Argentina will expand its currency trading bands at the monthly inflation rate starting in 2026, abandoning the current 1% monthly pace whilst simultaneously targeting $10bn in foreign reserve accumulation, in what marks the Milei government's most significant policy shift since finalising its $20bn IMF agreement in April.

According to Reuters, the peso weakened 3.46% to 1,490 per US dollar in early December 16 trading following the announcement.

The central bank will purchase up to 5% of daily currency market volumes to rebuild reserves depleted by years of economic crisis and capital flight. With November inflation running at 2.5%, the trading bands governing the peso's movements could widen at more than double the existing rate in the near term, addressing longstanding concerns about currency overvaluation during President Javier Milei's first two years in office.

Central bank president Santiago Bausili told a press conference on December 15 that the new monetary programme aimed to achieve "convergence of domestic inflation to the international inflation level". He added that the exchange rate bands would "continue to serve the function of limiting the risk of extreme and abrupt movements".

The shift comes after the Argentine government has consistently resisted pressure to lift foreign exchange controls, and could be seen as the libertarian administration's partial receptiveness to external demands.

Argentine sovereign bonds rallied on the announcement, with 2035 notes rising more than 1 cent to nearly 73 cents on the dollar. Yields hovering just above 10% align with levels officials have indicated could facilitate new issuance, crucial for Milei's goal of regaining market access by early 2026.

Bausili confirmed the IMF and US Treasury were briefed on the policy changes, which arrived as the fund warned that meeting reserve accumulation targets would be "challenging". Argentina faces approximately $4.5bn in debt maturities in January, with similar obligations in July. In total, the government is expected to pay $10bn in external debt obligations over the first half of 2026.

The Treasury purchased $320mn outside the market on December 15, operations Bausili characterised as "very tied to meeting debt maturities". The central bank said it would also be able to make "bulk purchases that could otherwise affect the proper functioning and stability of the market" beyond regular foreign exchange market operations.

The central bank anticipates that if money demand increases by 1% of gross domestic product, it could purchase $17bn "subject to the supply of balance of payments flows, without generating inflationary pressures", according to its statement.

Once capital market access resumes, dollar purchase requirements should diminish, though success depends on Argentina maintaining fiscal discipline whilst navigating substantial near-term debt obligations. The central bank forecasts "an expansion cycle in economic activity and credit to the private sector".

Bausili noted that "as long as observed inflation remains above international inflation, the central bank will maintain a contractionary monetary bias" to continue reducing price pressures.