The objectives set by the stabilization program that we began to implement at the end of 2023 are in line with the objectives of a traditional stabilization program: on the one hand, to reduce inflation and anchor expectations of price evolution; and on the other, to stabilize the exchange rate. Success in reducing inflation and stabilizing the exchange rate provides a context of financial stability that encourages the development of economic activity by making GDP grow. If this is achieved by relying on solid fundamentals such as fiscal order and monetary order, it is possible to anchor long-term expectations.
Having weathered the financial shock linked to midterm election hedging, for the past two months the stabilization program worked exactly as designed.
Interest rates and interest rate volatility were substantially reduced, downward inflation expectations remained anchored, the exchange rate had a stable behavior, and the Central Bank bought more reserves than the market expected. This dynamic is contributing to entering that virtuous circle of expectations that allows us to stretch the decision-making horizon. To be able to plan and decide with increasingly longer horizons. For this reason, we are beginning to see incipient recovery in credit and in the level of activity.
The combination of these factors is auspicious for the next stage of the stabilization program, with output returning to its growth path and returning to the disinflationary process.
Last year’s shock came at a cost. The uncertainty caused investment decisions and consumption decisions to be postponed, negatively impacting the level of activity. Interest rates increased and, in a monetary scheme based on the control of the quantities of money, it was expected that volatility in interest rates would also increase. These movements in interest rates impacted production costs. Financial hedging is an additional cost for the economy, which must be paid, especially when the scenario that was sought to be covered did not materialize.
The strength of the fundamentals, mainly the fiscal and monetary order, allows the absorption of these costs to be rapid and orderly. We are entering a stage where the evidence shows that they are being left behind.
Paradoxically, last year’s shock put the economic program to the test and, at the same time, validated it. We emerged from shock from a position of strength.
I am going to comment on four topics: (i) The external balance, (ii) The domestic balance, (iii) The exchange rate and monetary scheme, and (iv) The credit cycle.
The external balance is more robust than we experienced in the past
Argentina’s external stability today rests on four pillars that are worth breaking down.
The first is cyclical. Last year’s domestic shock—dollarization ahead of the October elections—is reversing strongly. Household demand for dollars fell sharply after the elections: those pesos that were previously externalized from the financial system now remain as deposits and loans in dollars. The corporate sector also changed its position: currency hedging is being dismantled and companies are reissuing debt to finance the investment cycle. Postponing investment decisions due to uncertainty is a thing of the past.
The second pillar is the reserve accumulation program. The BCRA has bought 6,900 million dollars so far this year, significantly ahead of market expectations. This allows us to make progress in disarming exchange restrictions: in line with what we announced in April 2025, foreign companies have already distributed dividends of more than 1,300 million dollars so far this year. It is the first time in six years that this is possible. We also relaxed restrictions for portfolio investors, but we maintain a prudential bias seeking to avoid short-term capital movements.
The third pillar is structural. Since the easing of the exchange rate in April 2025, exports measured in quantities reached a new all-time high every month. The normalization of the foreign exchange market and the reduction of withholdings improve the profitability of agricultural producers. The energy and mining balance will continue to grow for years: RIGI projects are already generating foreign exchange flows associated with their investment stage of almost 1,000 million dollars and, by the end of the year, export projects will be in production. Argentina’s export horizon has changed structurally. The exchange rate crises of the past left a deep mark. Many Argentines have not yet fully incorporated this new structure of the external sector into their decisions.
The fourth pillar is fiscal. Eliminating the fiscal deficit — an achievement that many considered impossible — breaks the historical correlation between fiscal imbalance and current-account deficit. That is, in itself, a structural insurance on the balance of payments. Current account dynamics are dominated by the private sector. If there is a current account deficit, it will be because the private sector can finance that deficit. If a surplus materializes in the current account, it will be the private sector that defines how the resources generated by that surplus will be allocated.
The result, so far this year, shows that gross international reserves increased by 5,000 million dollars. The agreement with the IMF anticipates purchases for 3,000 million more for the rest of the year.
The conflict in Iran sent energy prices soaring and altered the global inflationary outlook. Emerging markets felt the blow: exchange rate depreciations, interest rate hikes, volatility. Argentina, in contrast, stands out for the first time. The weight remains stable. Interest rates in the local market continued to fall. Argentine stocks appreciated.
That difference is no coincidence: it is once again the consequence of genuinely solid fundamentals.
Although counterfactual, this same shock would have had a very different impact on Argentina four years ago, without the position of energy exporter and with fiscal and monetary imbalances.
(ii). The domestic balance: resuming the disinflationary path
The CPI of recent months generated debate. There are negative aspects, and there are elements that allow us to be optimistic when we analyse the behaviour of prices in detail.
Among the negative aspects, it is clear that the price index increased more than desired, and that, at a general level, it could be indicated that there was a change in trend in the level of monthly inflation.
We believe that this is temporary. There was a jump in prices as a result of the fall in demand for money last year, combined with some changes in relative prices. Market expectations remain well anchored and also point to a disinflationary process ahead.
I want to emphasize in particular that monetary policy remains focused on ensuring that inflation in Argentina converges to the level of international inflation. In these months, this implies worrying that the impact on relative price changes does not translate into second-order inflationary impulses.
The relative prices that presented the most variations in recent months were:
– The price of meat, which has shown significant month-on-month increases since November last year.
High-frequency measurements show that by April that trend could have reversed. The increases in the price of meat are due to dynamics specific to that particular market. Pork and chicken did not validate the rise in prices: that is the absence of inflationary inertia, not a generalization of the shock.
– Public rates were adjusted between January and March, accommodating movements in the exchange rate of the pre-election period.
– The price of education has a seasonal component every year in March, since since we do not have classes between December and February, it is a price that is decoupled from the rest of the economy and its update has a full impact on March.
– Finally, the price of oil. Unfortunately, when we were finished digesting these relative price movements, the impact of the conflict in Iran arrived, which we cannot yet know if it will be temporary or permanent. This shock on naphtha prices hits all the world’s economies in a comparable way.
It is important to note that the movements in the exchange rate, which in the last year experienced modifications in the regime – with the exit from the clamps, the floating between bands, the elections and a geopolitical shock – had no impact on the prices of goods. This is a very important milestone for an economy as bimonetary as ours.
I close this review of recent inflationary dynamics by insisting that the effects of the brutal fall in the demand for money observed in the run-up to last year’s elections have been contained in the best possible way, and that, as the impact of these changes in relative prices dissipates, we will resume the disinflationary path. The expectations of the private sector did not change. The REM and inflation breakevens point to a gradual disinflationary convergence as the year progresses.
The point of arrival is the same. Core inflation measures and high-frequency observations validate this position for us.
(iii). Exchange rate and monetary policy
The expanding banded exchange rate scheme was originally conceived with two objectives: (1) to transition naturally towards a free-floating scheme avoiding concentrating the focus on an upcoming change in the exchange rate regime that generates speculation, and (2) to provide containment to devaluation expectations in a context of post-shock trauma, where fear dominates decision-making and the narrative repeats that the exchange rate will suffer quantum leaps (e.g.: “The dollar is going to 2,000”). The adjustment made to the band scheme as of January completed this transition to the exchange rate float. Few people today think about the ceiling of the band. Just today, the ceiling is at 1,700 pesos, 20% above the observed exchange rate. To provide context, 20% is how much the exchange rate moved in one year.
Today the exchange rate regime in Argentina is effectively free-floating, preserves the protection provided by the ceiling of the band at a level of real exchange rate that few would dispute and functions as an automatic stabilizer. In other words, at that level of the exchange rate that today would be 1,700, the flows of currency are undoubtedly inwards and not outwards of the country, providing stability to the exchange rate automatically.
It is also important to note that the structure of the exchange rate regime is out of the question. Four months ago, it was argued that it would not be possible to buy reserves with the exchange rate band scheme. That position is clearly no longer supported.
This year’s monetary policy operates in a radically different context from that of 2024 and 2025. The BCRA no longer has interest-bearing liabilities to absorb. The monetary base grew – from 2.5% to 4.1% of GDP – absorbing the elimination of interest-bearing liabilities and record purchases of reserves. The space for additional remonetization from this new starting point is starting again. Let us remember that Argentina functioned in the past with monetization levels that double the current one in real terms. Unlike when it was the priority to eliminate remunerated liabilities, today it is totally natural to prioritize the supply of this increase in the demand for money through the accumulation of reserves.
As for the testing of the monetary regime, market interest rates had been falling before the recent global shock, and that has not changed since the beginning of the war in Iran.
The BCRA actively worked to reduce the volatility of short-term rates: we made bank reserve requirements more flexible, normalized intraday liquidity requirements, and promoted bank reintermediation that is channeled through mutual funds. Volatility dropped. This was possible thanks to the fact that the BCRA has an increasingly solid balance sheet. In the coming days we are going to approve the 2025 financial statements that will show the highest net worth in the last 10 years.
One aspect of monetary policy that deserves to be highlighted is the role of the Treasury in the liquidity dynamics of the system. The Treasury is the market participant with the greatest impact on liquidity balances: its refinancings generate fluctuations of magnitude in the system’s positions. At the end of the first quarter, the Treasury seems to have adjusted its liquidity position. The BCRA incorporates this participation of the Treasury in the liquidity market in a coordinated manner, as an integral part of the management of its monetary policy.
And this is directly linked to credit and economic activity.
(iv). The credit cycle
In relation to the credit cycle, I will start by recalling the framework in which the current situation occurs. Our financial system has undergone structural changes in the last two years:
– The level of nominality varied very significantly,
– Importers’ trade debts were resolved,
– Price controls were eliminated,
– Artificial ceilings on interest rates were eliminated and
– The obligation to grant compulsory loans was eliminated.
The business of banks has changed profoundly. With lower inflation and fewer regulations, efficiency in operation is becoming increasingly important. Banks reduce their transactional business to return to the business of financial intermediation. Take deposits and grant loans that increasingly go to the private sector and not to the public sector. Since December 2023, the financial system’s exposure to the government has fallen by half, and banks’ exposure to the private sector has doubled.
Credit to the private sector was less than 4% of GDP, a level of credit that for practical purposes was non-existent. Today credit is still very low for our economy, but it is beginning to play a more relevant role.
If there is no credit, there is no default. When credit increased, default appeared.
In that process, both parties (the debtors and the creditors) had to relearn how to give and take credit. For the creditor, inflation took care of the last installments of a loan in pesos. Not anymore.
Banks, on the other hand, had to rebuild their databases and the credit history of their customers: scoring. The first wave of credit was granted, somehow, blindly. Without knowing who the money was being lent to.
That learning process faced last year’s interest rate shock, which exacerbated the challenge.
Those who read the Report on Banks published by the BCRA last Friday will have seen that the cycle of increase in non-performing loans that began in the second half of last year is concentrated in personal loans and that, at the aggregate system level, in February non-performing loans had not yet reached their peak. However, there are encouraging signs about the recovery of credit. The level of deterioration in the portfolios slows down, and the information anticipated in March and April shows further improvements. Measured in pesos, the impact of marginal non-performing loans is losing relevance on the financial system. In such a broad financial system, the data is mixed, with banks already seeing the peak of non-performing loans, some in January, some in February, and some in March. Little by little, the system is being cleaned up.
Our banking system is very robust, it has three times the level of capital required by international standards, and credit is still very low at the country level. The important thing is that we are once again in a position for credit to resume its growth path.
The component of banks’ balance sheets that is denominated in dollars is concentrated in corporate commercial loans where non-performing loans remain at historic levels. Credit in dollars has already resumed its pace, and increased 4,000 million so far this year. This is an increase of 22% in four months.
In conclusion, our direction is defined.
Our ultimate goal is crystal clear:
A stable economy that grows with predictability.
To achieve this: we are going to maintain fiscal balance. We are going to continue strengthening the BCRA’s balance sheet, anchored in reserves. We will continue to move towards a less regulated and freer economy.
Thank you.
