Argentina’s currency market has been flooded with dollars after exporters rushed to sell grain earnings under a temporary tax break introduced by President Javier Milei’s administration.
The move, paired with foreign exchange pledges of US support, has strengthened the peso and revived pressure on the government to rebuild its dwindling reserves.
The sudden inflow, reaching the $7 billion cap set by authorities by midweek, has created an unusual supply shock in a market where daily trading averages just $500 million.
Analysts say the central bank now faces a crucial moment to accumulate dollars without undermining efforts to control inflation.
Dollar inflows reshape Argentina’s FX market
The tax incentive, announced on Monday, required that 90% of grain export dollars be sold in the official foreign exchange market within 72 hours. By Wednesday evening, the cap was reached, and the money began reshaping the peso’s trajectory.
The surge coincided with Washington signalling its backing for Milei’s economic reforms, including discussions of a potential $20 billion swap line with Argentina.
The peso, which had hit a record low of 1,475 per dollar on Friday, rebounded nearly 10% by midweek. Devaluation bets dropped as the market reacted to the combined effect of the new measure and US assurances.
For investors, the scale of the inflows was seen as extraordinary, providing a rare opportunity for Argentina’s central bank to bolster its position.
Pressure builds to restore reserves
Argentina’s foreign reserves have dropped by $4 billion since early August, now standing at $39 billion. Last week alone, the central bank sold more than $1 billion in just three days to defend the trading band agreed with the International Monetary Fund.
Rebuilding those buffers has long been a condition of financial stability, and analysts believe Milei’s government has little room to delay.
Although Milei has previously resisted intervening in the market to protect his disinflation goals, circumstances appear to be shifting.
In April, he posted on X that there would be “no intervention until the peso hits the band floor”, which currently stands at 947 pesos per dollar.
But with the currency rallying, market participants now expect purchases to begin around 1,300 to 1,350 pesos, narrowing the band and strengthening reserves.
Peso rally sparks monetary shifts
The central bank offered its first signal of changing course on Wednesday, lowering the one-day peso repo rate by 10 percentage points to 25% while the peso traded at 1,330 per dollar.
Many traders interpreted that move as confirmation that the level has become the implicit floor of the band.
The decision comes at a moment when analysts warn that allowing the inflows to slip away without building reserves could leave Argentina exposed.
They argue that reserves must be rebuilt for debt service and financial stability rather than used to defend the peso directly.
With the peso stabilising, authorities face the challenge of seizing the temporary supply boost while preventing excessive appreciation of the local currency.
Markets watch for next steps
The next phase depends on how quickly the government can accumulate genuine reserves without undermining its broader economic programme.
Investors remain cautious, noting that a failure to build buffers would push up risk spreads and force the government into tighter asset-liability management.
For now, the peso’s rally has been supported by the unexpected scale of dollar inflows and renewed backing from Washington.
But with Argentina’s history of volatility, markets are bracing to see if Milei’s administration will use the current window to strengthen its finances or risk facing another downturn when temporary support fades.
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