The first round of the year sees the introduction today of the new exchange rate band system, which, as already announced, will use the inflation value of the previous two months as a reference to set its upper limit. In this case, the new cap will be 2.5% above the current cap because the consumer price index rose by that percentage in November.
The monthly update regime of 1% is therefore left behind. The change is not minor: it changes the dynamics of expectations, redefines the role of the exchange rate as a nominal anchor and proposes a new balance between dollar, prices and monetary policy in 2026.
Another change, although we will have to wait and see how it is reflected in practice. is that the Central Bank will officially buy dollars to increase the volume of reserves. The idea is to take up to 5% of the daily trading volume on the unified exchange market. The goal at the end of the year: Add at least $10 billion to reserves.
So far, the path has been clear and predictable: a controlled peg crawl with a pace of adjustment known in advance. This rule had one virtue – predictability – and one problem: when inflation was above this value, the exchange rate lag accumulated. The new formula is intended to avoid this disproportion. By indexing the bands to past inflation, the government introduces automatic correction mechanism This reduces the risk of delay but also eliminates a rigid nominal reference.
What is likely to happen to the dollar? The most likely scenario is one more flexible nominal exchange ratewith monthly adjustments reflecting past inflation. This reduces the likelihood of sharp jumps, but also makes an “ironed” dollar less likely. In practice, the market internalizes that the delay in the exchange rate will not be tolerated, but also that there will be no disorderly overshoots as long as the bands are credible and defensible.
Martín Redrado, former president of the Central Bank, expressed some reservations about the new regime. In dialogue with The Chronicler He noted that the new system is a transitional arrangement and that Argentina should move towards a more definitive exchange rate horizon. “We have already seen pressure on the exchange rate in recent days, with a central bank being more active in selling dollars than buying. This is what he believes is happening.”because the dollar will tend to move towards the upper limit of the band, This requires a lot of skill to accumulate reserves without creating tension.”
The other question that will be followed closely is what impact the new exchange rate system will have on inflation. There are risks for Redrado: “Using past inflation to adjust ranges “That doesn’t seem entirely right to me, as it sets a floor on expectations and may make it difficult to bring inflation down, unlike what would happen if a system based on future expectations were used.”
From the perspective of expectations, change has ambivalent effects. On the one hand, improves macro consistency: If prices rise, the exchange rate will adjust and there would be no question of a delay; If inflation falls, the pace of correction also slows.
The effects on the Inflation in 2026 It will depend on this balance. Indexing the bands reduces the risk of a discrete jump in exchange rates – historically one of the main triggers of inflation – and in this sense can contribute to more stable and predictable inflation. But it also means accepting the exchange rate will not lead to disinflationbut to accompany them. The process will then be slower and require more discipline in other areas.
The exchange should be conducted under this scheme lower than in abrupt correction regimes, but not zero. As the dollar moves in line with past inflation, prices lose their expected reference but gain predictability. By 2026, this suggests inflation with lower monthly volatility, although still with significant sluggishness, particularly in regulated services and prices.
There is another point: index bands only work if the market believes so The central bank is not obliged to defend an unrealistic exchange rate. In this sense, the new system reduces the likelihood of speculative attacks, but increases the importance of reserves, budget surpluses and coordination with monetary policy. Without these pillars, indexation can become a simple validation of inflation rather than a tool to contain inflation.
In summary, the change in the exchange rate rule marks a relevant conceptual transition. The gangs are no longer trying to force disinflation by making the dollar backward, but rather Avoid imbalances while inflation falls through other channels. By 2026, the most likely scenario is a dollar that moves with prices, gradually declining inflation, and an economic program whose credibility depends less on the exchange rate and more on overall consistency. In Argentina, as always, the rule counts. What is more important, however, is that it is fulfilled.
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