Caputo gives Bausili $2 billion in “firepower” to intervene in currency markets with bonds

Argentina’s Economy Ministry is giving the Central Bank up to $2 billion in additional “firepower” for the currency market by swapping peso bonds for instruments linked to the official exchange rate.

The government expanded the issuance of two dollar-linked Treasury bills for the swap, according to a measure published in the Official Gazette. The Central Bank will hand over a peso-denominated Lecap maturing on Oct. 30 and receive Lelink bills worth up to $800 million that mature on Sept. 30 and another $1.2 billion maturing on Oct. 30.

The final amounts will depend on market prices when the exchange is completed. The transaction took place on Friday and will settle on Monday. A joint resolution by the Finance and Treasury secretariats authorized the operation.

In practical terms, the swap changes the composition of the Central Bank’s securities portfolio. It adds instruments whose value tracks the official dollar rate and that the monetary authority can sell in financial markets to calm exchange-rate tensions. The government has used this tool during recent periods of pressure on the dollar, alongside other public-sector positions such as dollar-futures contracts.

The Treasury and Central Bank carried out a similar operation for the same amount in July. The latest swap increases the volume of dollar-linked instruments available to the monetary authority as the government seeks to contain pressure on the currency. It also changes the Treasury’s liabilities, replacing fixed-rate peso debt with exchange-rate-linked instruments. That reduces exposure to peso interest rates but increases exposure to the dollar. The Central Bank’s direct foreign-currency sales remain restricted unless the exchange rate reaches the floating band’s ceiling, currently near 1,900 pesos.