Argentina's Central Bank Extends Dollar-Buying Streak to 19 Sessions, Reserves Hit Milei-Era High

Central Bank Achieves Significant Reserve Accumulation

Argentina's Central Bank (BCRA) recently concluded a remarkable 19-session streak of net dollar purchases in the foreign exchange market. This sustained effort has resulted in the accumulation of an additional US$1.134 billion, significantly bolstering the nation's financial position. As a direct consequence, Argentina's gross international reserves have climbed to US$46.24 billion, marking the highest level recorded since 2021 and a new peak under the administration of President Javier Milei.

Strategic Reserve Building Under Milei Administration

This aggressive dollar accumulation is a key component of what officials describe as 'phase 4' of the Milei administration's economic program. The strategy centers on robust reserve-building alongside the implementation of a new exchange-rate framework that includes specific bands and intervention rules. The Central Bank has set a daily cap of 5% of the traded volume in the official foreign exchange market for its purchases, while also engaging in direct, off-market transactions to maintain market stability. The broader objective aligns with calls from the International Monetary Fund (IMF) to rebuild reserve buffers, crucial for Argentina's potential return to international capital markets. The BCRA aims to acquire up to US$10 billion in 2026, with total reserve accumulation potentially reaching US$17 billion, depending on balance-of-payments flows.

Factors Contributing to the Dollar Inflow

Several factors have contributed to the Central Bank's successful dollar-buying spree:

• A notable mark-to-market boost from gold holdings, as bullion rallied amid global volatility, with gold hitting new all-time highs above US$4,700 an ounce in January.
• Increased dollar supply stemming from agro-export settlements.
• Stronger inflows from corporate external funding.
• A general softer demand for hard currency within the domestic market.

These combined elements have created a favorable environment for the BCRA to strengthen its reserve position.

Broader Economic Implications and Outlook

The increase in reserves has coincided with other positive economic indicators for Argentina. The nation's country risk, a key measure of investor confidence, has reportedly dropped below 500 points for the first time since 2018. This improvement in financial metrics is seen as a positive sign for the government's efforts to stabilize the economy and attract foreign investment. President Milei's economic policies, which include a significant devaluation of the Argentine peso in December 2023, a crawling peg exchange rate, and measures to freeze the base money supply while prohibiting direct central bank financing of the Treasury, are geared towards achieving 'spontaneous dollarization' and long-term economic stability.