The new band scheme debuts: what changes are coming for the dollar and inflation

This article by Juan Marcos Pollio was published in the Herald’s sister publication mbito  Starting this Friday, January 2, the new inflation-adjusted band scheme will come into effect.  Through its implementation, the economic team led by Minister Luis Caputo seeks to expand the upper limit of the exchange rate scheme so that the accumulation of foreign currency, a demand long postponed by the government, does not push the exchange rate against the ceiling of the band, forcing the authorities to have to hand over those same dollars. According to ACM economist Francisco Ritorto, the new scheme that debuts in 2026 “aims more at lowering the probability of tensions than at generating a sudden movement of the dollar.”  When consulted by the Heralds sister publication mbito, he stated that “the idea is to give a little more predictability to the exchange rate regime, with a better calibrated band and currency purchases that are aligned with the demand for pesos, to avoid defensive reactions to any noise.” For his part, economist Christian Buteler described the new band scheme as “better than the previous one” because “it takes into account what happens with the rest of the prices in the economy” and is not “an arbitrary number like 1% monthly, which caused the band ceiling to drop every month in real terms because inflation was above that amount.” The pressure on the dollar However, Buteler was skeptical that the dollar “will fall nominally”, an element that he deemed necessary for the Central Bank (BCRA) to be able to buy dollars.  “With an exchange rate at 5% of the ceiling of the band, any extra demand placed on it causes it to immediately reach the ceiling and the Central Bank ends up selling, contrary to what it needs to do,” he explained.  “This new scheme allows them not to fall behind and maintain that ceiling at the rate of inflation. It does not correct the drop of the band’s ceiling that occurred throughout the year. At that point it seems that we continue with that inconvenience. It is not falling further behind, but it is not going to recover either,” he added. Adding a complementary view, the head of Macroeconomics at the Bank of the Province of Buenos Aires (Bapro), Matas Rajnerman, argued that “the net demand for dollars has accelerated in recent days,” with signs of strong interventions by the Treasury.  Last Monday, gross reserves fell by US$1,718 million, of which US$1,345.5 million have no official explanation, according to financial company Personal Investment Portfolio (PPI).  “If a change is coming in the seasonal demand for money that may explain this dynamic, we will have to see if the Central Bank in January begins to buy dollars as it said on December 15 or maintains this sales posture. Depending on one scenario or another, the exchange rate would tend to accelerate,” argued the Bapro executive. And he added: “With that resolved, obviously whatever happens to the dollar rate will have an impact on inflation.” Persistent inflation  Ritorto affirmed that the government’s focus “continues to be on sustaining disinflation.” For this reason, “the signal is that monetary expansion will be limited and consistent with what the economy demands, which helps maintain the nominal anchor, as long as the scheme is sustained over time.” For his part, Buteler explained that “inflation is around 2% and with all the increases that will follow, such as rate updates and others, it is a difficult point to break.” And he added: “Within that range, lowering it down to the levels the government wants seems difficult.”  Similarly, Rajnerman argued that “inflation continued to rise in December,” with an increase “that could even be above 2.5%.” And he clarified that “although December is usually a seasonally busier month than January in terms of prices, a priori there are no great reasons for inflation to drop.”  According to the Economic Studies Management at Bapro “the challenge of 2026 will be to manage a fine balance between fiscal consolidation, disinflation and exchange rate stability.”  In this sense, they argued that the government announced a series of measures for 2026 that “imply a permanent reduction of resources of close to 0.7 points of gross domestic product (GDP)” and that to counteract this decrease in resources, the government has two main options: subsidies and taxes on fuel.  “The increases in fuels and tariffs put pressure on the consumer price index (CPI) in the short term (if all the increases in gasoline and tariffs were carried out, the impact would have been 1.2 points on the CPI in January) and, in an exchange scheme that adjusts for past inflation, that can stress devaluation expectations and test the consistency of the nominal anchor,” they stated.