Financial market concern over the Argentine Central Bank's expansion of puts

The Central Bank of Argentina has raised concerns in the financial market due to the accumulation of a potential liability that has triggered alerts among investors. The reason behind this concern lies in the puts that the institution provides in each debt auction, with the aim of making national Treasury bonds more attractive. These puts function as a "insurance" to entice banks to acquire the bonds, as the central bank commits to repurchase them in case of a market price drop. According to estimates, the stock of puts issued by the Central Bank of the Argentine Republic (BCRA) has already reached 16.3 trillion pesos (equivalent to US$ 19,500 million), significantly surpassing the total money in circulation in the country and the monetary base. This practice has become a key factor for the success of debt auctions led by the current Minister of Economy, Luis Caputo, who has achieved historical levels of debt rollover reaching 2,965%. The increase in the number of puts has raised concerns in the market due to the potential impact of a massive issuance of pesos in an economy with an annual inflation rate of 250%. Experts like Juan Manuel Truffa from the consultancy Outlier warn about the risk of increased dollarization pressure in case of a bond sell-off event that forces the central bank to issue more pesos. Caputo's management has been criticized for the expansion in the use of puts, which has led to a growing dependence of banks in debt auctions, limiting the participation of other actors in the market. In response to these criticisms, President Javier Milei has decided to restrict the use of puts to only one debt instrument, which has already had an impact on the debt rollover. Despite concerns surrounding the puts, some analysts like Emiliano Anselmi from the broker PPI point out that the potential monetary impact would not be as dramatic if it does not spread to the private sector. However, uncertainty persists regarding the market's behavior in a potential selloff context. Amid this situation, Milei's central bank has started to strengthen its foreign exchange reserves, acquiring US$ 9,000 million to stabilize the currency and the economy. Although the use of puts has sparked debate, some economists like Diego Chameides from Banco Galicia highlight that this practice allows for shortening the term of acquired debt, presenting a complex outlook in the Argentine financial horizon.