Argentinian Central Bank Interventions Aren’t Sustainable

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Since the Aug. 11 primary, a plunging peso and massive capital outflows led the Argentinian central bank to adopt extreme measures, including partial capital controls and heavy market intervention. A sharp decline in international reserves, however, indicates that this course of action is not sustainable, so a new approach should be forthcoming. Stricter capital controls were announced last night, and Bloomberg Economics believes the central bank has incentives to intervene less than it did ahead of Sunday’s elections. Any loophole in capital controls, combined with less intervention, may mean additional pressure on both the official exchange rate and alternative measures of its fair value, such as the blue chip dollar swap.