By Rodrigo Campos and Laura Matthews
NEW YORK (Reuters) -Investors are urging Argentina’s government to allow greater flexibility in its foreign-exchange regime, saying a more dynamic peso would help rebuild reserves and sustain foreign investment, even as top officials insist the current band system will remain unchanged.
President Javier Milei and Economy Minister Luis Caputo have repeated that they will defend the existing framework of daily peso adjustments within a widening band. The policy is said to be in place through the 2027 presidential election, in which Milei is expected to seek reelection.
Yet money managers say Milei’s reluctance to let the peso float risks constraining growth and foreign currency inflows at a time when Argentina is trying to consolidate stability after last month’s stronger-than-expected ruling-party performance in the midterm election.
“From a fundamental perspective, some sort of adjustment is likely needed to organically build FX reserves into 2026,” said Kathryn Exum, co-head of sovereign research at investment manager Gramercy. “The authorities can probably muddle through without an immediate change, but that would undershoot expectations and could make things more challenging from a country-risk premium perspective.”
Exum said a gradual widening of the official band, currently designed to widen by 1% per month, could be paired with a formal reserve-accumulation program that markets would welcome. “Over the medium term, evolution of the FX framework is both likely and required,” she said.
Pressure on the peso has eased of late but it still trades closer to the weak end of its official band after months of dollar demand. Futures imply the currency could breach the band within 12 months at the most, underscoring market expectations of an adjustment.
Christine Reid, portfolio manager at Ninety One, said many in the market assumed the currency’s earlier weakness was purely based on fears that the opposition Peronists would outperform in the midterms, putting Milei’s austerity agenda at risk, but the data suggested otherwise.
“The authorities chalk it up entirely to political risks getting priced into the currency, and it was clear that the currency was slightly overvalued even before the political issues started flaring up,” she said.
Reid added that investors had also overestimated the chances of a post-election devaluation. “Governability and the likelihood of fiscal reforms are much better than anybody expected, and that does matter for what an equilibrium real-exchange-rate valuation is,” she said.
But she said the peso remains marginally expensive even after weakening some 25% since controls were partially removed in April, and that the current cost of making the exchange rate more flexible would be low.
THE DOLLARS ARE COMING
A parallel source of FX support is emerging from Argentina’s re-engagement with international debt markets. After years of muted corporate issuance abroad, several large Argentine borrowers raised over $1.7 billion in global bonds in recent weeks. Analysts say these inflows, once converted locally for capex and operations, could help generate much-needed dollar supply in the domestic market.
The administration’s strategy has also been supported by a $20 billion U.S. Treasury swap line that allowed the central bank to sell dollars in the spot market ahead of the election, helping to stabilize the peso. That facility, alongside hints of a multi-bank loan and pledges of investments in various industries, is an implicit U.S. backstop that reassures investors the government can defend the currency.
Jared Lou, portfolio manager at William Blair, said that while these supports improve short-term confidence, investors still view structural change as fundamental. “Reserve accumulation is a function of how much they allow the peso to depreciate, whether they rethink the crawling bands,” he said. “Allowing a slightly faster crawl would have helped alleviate pressure on reserves.”
Investors also caution that maintaining a rigid FX regime could deter broader foreign direct investment from sectors beyond commodities. “I’m not as convinced that there are many other sectors that are willing to stick their neck out at this particular point in time. (If) you see political continuity into next year’s presidential election, then that’s a different conversation,” Lou said.
Most analysts expect the government to maintain the current framework through year-end and revisit its parameters once 2026 reserve targets come into focus. With inflation running at 31% year over year and persistent pressure on the peso, economists say the window for adjustment may narrow.
Overall, the stronger mandate, fiscal anchor and U.S. support give them breathing space, Lou said. But over time, a more flexible FX regime will be helpful for Argentina to rebuild reserves and re-establish durable market access.
(Reporting by Rodrigo Campos and Laura Matthews; Editing by Christian Plumb and Andrea Ricci )
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