How high can the dollar go without government intervention, according to the BCRA's scheme?

Argentina's Central Bank (BCRA) intervention band for the official dollar exchange rate is undergoing adjustments, with the upper limit projected to fall below $1900 pesos in August. This shift follows the publication of June's Consumer Price Index (IPC), which showed a sustained deceleration in price increases over the past three months.

The official exchange rate band, established earlier this year, dictates when the BCRA must intervene in the market. If the dollar's value drops below the band's floor, the Central Bank is expected to buy reserves. Conversely, if it rises above the ceiling, the bank must sell foreign currency. This mechanism was activated four times during last year's electoral period.

The band's limits are indexed to the IPC with a two-month lag. The ceiling, which ended July at approximately $1844.87 pesos based on May's 2.1% inflation, is expected to rise to around $1879.92 pesos by the end of August, reflecting June's 1.9% inflation. The lower limit for August is projected at $1848.23 pesos.

Financial analysts note that with lower inflation, the dollar's rise is outpacing price increases. In June, the dollar appreciated by 5%, while the May IPC, used for that period's band calculation, was 2.1%. This trend has maintained a gap of around 20% between the dollar's movement and the band's ceiling since March.

Analysts anticipate that the dollar will continue to rise faster than inflation in the second half of the year. This scenario is expected to narrow the gap between the dollar's value and the upper limit of the intervention band, potentially requiring less frequent BCRA intervention to maintain the established parameters.

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With lower price increases, the dollar's rise will outpace inflation.