The national currency advanced as much as 4.4 percent against the US dollar, before paring the gains to 44.85, an increase of 2.4 percent. The yield on government bond maturing in 2021 dropped 88 basis points to 17.4 percent.
The Central Bank said it will start to sell dollars to stabilise the peso depending on market volatility, overturning its previous policy after the currency slumped last week on concerns about the upcoming election. The resulting carnage pushed bonds deep into distressed territory for part of the week. Bank officials also said Monday they would sell more dollars per day, US$250 million, if the peso weakens beyond 51.4, up from a previous amount of US$150 million per day.
"With these measures the Central Bank has now significant discretion to intervene in the FX market whenever it judges appropriate and by whatever amount it sees fit," said Alberto Ramos, head of Latin America research at Goldman Sachs.
Some analysts expressed cautious support for the new measures as the bank applies a whatever-it-takes approach to cool annual inflation running at 55 percent. The bank has US$72.3 billion in foreign reserves that it can tap to stabilize the peso.
"It’s a bit uneasy the need to frequently adjust their strategy and increase firepower," said Daphne Wlasek, macro strategist at XP Investments in New York. But, "any measure to ensure the FX stability is positive."
The new measures follow a brutal week for Argentina bonds, with one yield rising to as high as 20 percent from 13 percent. The peso lost nearly nine percent last week, driven mostly by a poll that showed market-friendly President Mauricio Macri could lose a run-off vote this November against his populist predecessor, Cristina Fernández de Kirchner.
The International Monetary Fund, which is managing a record US$56-billion credit line for Argentina, supported the measures. However, some analysts noted that Monday’s announcement effectively scrapped a non-intervention zone in the peso that the bank had imposed last October with the IMF deal.
It’s "yet another major face lift of the under-pressure monetary plan," said Pablo Waldman, head of strategy at Argentine firm INTL FCStone. "It will now surely intervene forcefully to cool further inflationary pressures and stabilise the currency as the national election looms near."