Luis Caputo's plan to curb inflation is worrying the market: the dollar is near $1,300 and rates are at 36%.

The national government's economic team had a difficult week. The official dollar rate climbed to nearly $1,300, far from the floor of the exchange rate band the Executive Branch seeks to maintain. Meanwhile, the rise in peso rates—one of Caputo 's main tools to curb this pressure—showed limited results and raised new concerns among analysts and traders.

Following the end of the Financing Letters (LEFI), used by banks to absorb short-term liquidity, the market was left with $10 trillion in cash. This boosted demand for dollars. To prevent this pressure from being passed on to prices, the government launched new instruments such as Lecaps and repos, with annual rates of 36%. However, the dollar rose almost 7% in just two weeks.

GMA Capital asserts that the current mix of "high rates and an intervened dollar" only temporarily supports the macroeconomic framework. " While the lifting of the currency controls was almost perfect, the replacement of LEFIs with Lecaps was much more disorderly and surprised the market," they warned.

According to the IEB Group, the dismantling of the LEFIs had a strong impact on liquidity and generated imbalances. The government's strategy appears focused on a political objective: maintaining the deflationary process until the elections. To achieve this, it assumes high costs, such as higher credit costs. Rates for corporate advances have reached 38% annual interest rate (APR) and personal loans have reached 66%, which has a direct impact on economic activity.

Despite the exchange rate pressure, the Central Bank maintains its commitment not to intervene in the official market if the exchange rate does not reach the floor of the band. However, the Treasury, on the other hand, made purchases outside the foreign exchange market for approximately US$900 million, according to GMA data.

This reinforces compliance with IMF targets and secures foreign currency for future maturities. But it also creates uncertainty: is the new level of $1,260 assumed to be a new floor? In terms of competitiveness, the real exchange rate improved 4% in the month, reaching levels similar to those of 2017, which could benefit the external balance.

The consulting firm LCG celebrates the exchange rate's rise within the current flexible framework. In the last 30 days, the dollar has appreciated 8% in real terms against a basket of currencies, and 16% since the beginning of the year. This is key given the external deficit projected for the coming months.

However, there is concern that, while the government attempts to contain exchange rate pressure with indirect interventions and high interest rates, the Treasury continues to absorb the supply of foreign currency. This contradiction adds to the uncertainty on the financial front.

Country risk, meanwhile, continues to rise and is now approaching 770 basis points. This limits the government's ability to obtain external financing, even after the sovereign rating upgrade granted by Moody's.

Federico Filippini , head of Research & Strategy at Adcap Grupo Financiero, warns that investors are still wary of the political feasibility of implementing structural reforms. Without them, sustained growth remains a distant promise.

However, he noted that the Treasury's recent reserve purchases could herald a more favorable scenario if the ruling party achieves a resounding victory in October. "That could drive the long-awaited decline in country risk," he concluded.