Javier Milei and Luis Caputo's maneuvers to curb rate hikes and how they impact the dollar, credit, and inflation.

Interest rate volatility became the heart of Javier Mile i's economic plan. The latest mega-maturity of Treasury bonds, worth $15 trillion, left almost $6 trillion unrenewed and set off alarm bells . The reaction was immediate: the Ministry of Economy and the Central Bank activated emergency measures to remove pesos from circulation and prevent the dollar and inflation from skyrocketing.

Luis Caputo announced a new "extraordinary" auction just hours after the initial setback, while Santiago Bausili ordered a tightening of the bank reserve requirement. The requirement was raised from 45% to 50%, and banks must also comply with it on a daily basis. In exchange, a portion of the reserve requirement could be used to fund Treasury bonds, but only those purchased in official auctions. "Bring your pesos to the auction and take bonds with you," was the implicit message.

The move momentarily calmed the market, but left the financial system in a bad mood. “ A week ago they lowered our reserve requirements, then they raised them, they gave us worthless bonds, and all with rates at 80% . What can we plan like this?” complained a leading banker. Christian Buteler , an economist, explained: “Banks overreact and hold more money, but that comes at a cost. And the cost of money is the interest rate.”

The effect is already being felt outside the financial sector. While Banco Nación tempts savers with fixed-term deposits at 44% per year, an SME must pay nearly 80% for an overdrawn current account. A month ago, they were paying less than half. The ruling party, however, defends the strategy. " Let the banks go back to being banks and granting loans ," they argue quietly.

The challenge is that, in the name of a stable dollar and inflation that has been below 2% for three months, the real economy is beginning to feel the stranglehold of expensive credit. The consulting firm Outlier was clear: “ It's no longer a matter of financial assets. The rate hike has been passed on to the credit market and, through that, to the real economy. All for short-term electoral purposes .”