The Argentine peso: what to expect after the mid-terms

Despite denials from policymakers, we think that Argentina’s exchange rate regime in its current form is unsustainable and that there will be a change after the mid-term elections later this month. We think it’s most likely that policymakers will try to balance the objectives of reducing inflation while improving external competitiveness by allowing a step devaluation and revert to a trading band. This would be a step in the right direction, but wouldn’t fully restore external competitiveness. If Milei’s party does poorly in the elections, this would increase the risk of a sharp and disorderly fall in the peso.