Argentina's peso strengthens while borrowing costs surge to post-election highs

The contradiction defining Argentina's financial week lies neither in the exchange rate nor in inflation, but in the simultaneous coexistence of two diametrically opposed signals: country risk hit its highest level since the 2025 elections in the very same days that the multilateral real exchange rate reached its lowest readings since May of that year. The market is charging Argentina more to borrow precisely when the peso is strongest in real terms against its trading partners. It is a dissonance that consultancy 1816, one of the most closely followed in Buenos Aires financial circles, labeled "peculiar," and which captures better than any other indicator the state of perplexity gripping the economic program as October closes.

The immediate trigger was the surprise reelection of Luiz Inácio Lula da Silva in Brazil, which unleashed a nearly eleven percent depreciation of the real from election day through this week and sparked a selling wave on Argentine assets that, according to Delphos Investment analysts, was disproportionate relative to the hit absorbed by other emerging markets. The emerging markets index rose 1.5% in the days following the Brazilian runoff; the Merval lost ground. Argentine sovereign bonds, including the Globals issued under New York law, fell even further than their Brazilian peers in Monday's session, pushing the country risk measured by JP Morgan to 763 basis points before Thursday's session brought some relief, with debt securities recovering 0.7% on average and the risk index closing at 741 units. The wholesale dollar, meanwhile, closed Thursday at 1,539 pesos, with a modest 1.5% rise so far in October, well below the upper limit of the exchange rate bands set at 1,949.91 pesos, leaving the official exchange rate 26.7% away from the theoretical ceiling of the float.

Central Bank president Santiago Bausili presented the third-quarter Monetary Policy Report with a deliberately reassuring tone: the peso withstood the external shock, the BCRA returned to buying reserves on Thursday for the first time in the week with 47 million dollars, and gross reserves remain around 50.6 billion dollars. Bausili also sought to put to rest the controversy over the handling of institutional gold, reiterating that the 61.7 tons of the metal in BCRA custody have not been reduced, that the derivative hedging operations —which generated accounting losses of 1.023 billion dollars in 2025 according to the Auditoría General de la Nación— must be assessed alongside the revaluation of the physical asset, and that "we have nothing in England," in reference to rumors about the gold's whereabouts. The AGN maintains that the BCRA miscalculated the international price trajectory and improperly separated the metal's gains from the derivatives losses. The BCRA counters that this reading is "ill-intentioned." The debate is far from settled.

Where the dynamic is more worrying for the government is in domestic economic activity. According to private estimates from Equilibra and Orlando J. Ferreres & Asociados, the economy would have grown a modest 0.5% and 0.1% respectively in seasonally adjusted terms in September, but the year-on-year variation remains in negative territory. With two consecutive quarters of contraction, Argentina has technically entered recession. The Central Bank itself acknowledged in its report that 47% of industrial sectors are contracting, against 29% that are growing, and the IMF —which approved at the technical level the third review of the agreement with the country, enabling a disbursement of approximately 900 million dollars in early December pending board approval— explicitly noted a "shared understanding" of the need to move from stabilization to growth. The IMF agreed with authorities on measures aimed at deepening capital and mortgage markets, advancing infrastructure concessions, and maximizing the local impact of the RIGI. Caputo's team is simultaneously evaluating credit lines for durable goods through Banco Nación, in what La Nación described as a pragmatic "heresy" within the limits allowed by the President.

The first RIGI Business Round, held this week at the Estación Fluvial de Rosario with Caputo, Karina Milei and governors from ten provinces in attendance, brought together 43 large mining, energy and infrastructure projects with some 1,800 supplier SMEs and generated more than 3,300 meetings. The minister projected committed investments of 210 billion dollars and promised 250,000 formal jobs. Barrick Mining, Newmont and Eramet Eramine participated in the business tables. But the tension between the extractive sector boom and the contraction of manufacturing industry is increasingly evident: industrial SMEs have logged fourteen consecutive quarters of year-on-year decline, with production falling 11.9% in the third quarter. One in seven firms in the sector received garnishments from ARCA, in many cases for non-payment of ongoing obligations such as VAT and income tax. Footwear is down 24.8% year-on-year between January and August, tractor manufacturer Pauny is in financial distress with 146 bounced checks and unpaid wages, and the Ecocarnes meatpacker shut down its San Fernando plant with bank debt of 45.7 billion pesos. Smuggling, which according to Insight LAC represents 5.06% of GDP, additionally drains 2.3 billion dollars a year in tax revenue.

Former minister Martín Redrado warned at the Argentina Fintech Forum that 2027 will bring "exchange rate tension," noting that 200 trillion pesos in Treasury instruments mature before the elections, and that with one click on home banking that volume can turn into pressure on the FX market. Ricardo Arriazu was more blunt: he argues that the BCRA's excessive reserve purchases drain pesos from the system and are the main factor explaining why the economy could be growing at 5% but is instead stagnant. Pedro Siaba Serrate of PPI summed up the market's reading: current bond prices imply a probability of Milei's reelection of just 50%, when three months ago that figure stood at 88%.

On the energy front, the news is structurally positive. YPF reported adjusted EBITDA of 2.503 billion dollars in the third quarter, the second-highest in its history, with shale oil production of 224,000 barrels per day already surpassing in October the annual target of 250,000. Vista Energy, the country's largest independent producer, reported record production of 169,000 barrels of oil equivalent per day in the quarter, with exports representing 73% of marketed crude and generating 935 million dollars. In Punta Colorada, Río Negro, the Vaca Muerta Oil Sur project is 85% complete, with an investment of 3 billion dollars that promises to turn Argentina from a producer into a net crude exporter. The record first-ever semi-annual energy surplus —around 7 billion dollars, according to the Rosario Stock Exchange— reflects the magnitude of this transformation.

In the financial system, the week was marked by technical approval from the BCRA's Superintendency for Mercado Pago's application to become a bank under the name Mercado Banco, a step that precedes final board approval before year-end. Banco Macro launched its private banking unit, Macro Private Bank, targeting clients with assets exceeding one million dollars, while fintech firm N5 acquired three artificial intelligence companies for 34 million dollars. November will also kick off with new electricity tariffs for Edenor and Edesur —with adjustments of 3.18% and 2.94% in the distribution component, respectively— and increases in AMBA public transport, while the government is postponing the fuel tax until December so as not to add pressure to inflation.

What to watch in the coming weeks is clear: IMF board approval in December and the 900 million dollar disbursement, the Treasury's ability to roll over November maturities —amounting to roughly 40 trillion pesos—, the trajectory of the Brazilian real and its impact on Argentina's real exchange rate, and the speed with which fourth-quarter activity data confirm or refute the recovery scenario projected by the Central Bank. The political noise of 2027 is already priced into bonds; the question is whether the macro can get ahead of that noise.