Dollar: how the exchange rate band moves in July after inflation slowdown

Argentina's foreign exchange band will see its upper limit adjusted to around 1844.87 Argentine pesos by the end of July, following the May Consumer Price Index (IPC) which registered a 2.1% increase. This indicator is crucial for determining the wholesale dollar's fluctuation margin before the Central Bank (BCRA) intervenes in the market.

The ongoing slowdown in inflation, now in its second consecutive month, directly impacts the exchange rate scheme. Since the beginning of the year, the band's ceiling and floor have moved from a fixed trajectory to being automatically indexed to the economy's price increases. If the wholesale dollar surpasses the band's ceiling, the BCRA is compelled to intervene in the Mercado Libre de Cambios (MLC).

The foreign exchange bands were implemented in mid-April of the previous year. Initially, a floor of 1000 pesos and a ceiling of 1400 pesos were set, with daily adjustments of 1% per month until December 31. To prevent a real exchange rate lag due to inflation, the BCRA announced in mid-December that in 2026, the bands would adjust based on the latest inflation data.

Considering the band's ceiling is projected to end June at 1806.92 pesos, influenced by April's 2.6% inflation, the 2.1% rise from May's IPC will push this maximum limit to approximately 1844.87 pesos by the close of July. Conversely, the lowest price the official wholesale exchange rate could reach by the end of next month is 754.14 pesos. This means the inflation slowdown translates into a more moderate adjustment of the upper limit.

The system stipulates that if the exchange rate falls below the floor, the Central Bank intervenes by purchasing reserves. If it reaches the ceiling, it must sell foreign currency. The latter scenario occurred four times during the previous year's electoral period. The gap between the wholesale dollar and the band's ceiling is currently around 20%, a level not seen since June 2025, but it returned to this point in March and has remained stable since.