(Bloomberg) -- Argentine President Javier Milei’s administration embarked on what it called the second phase of its economic plan Friday by announcing that it will swap out notes held at the central bank for new Treasury debt, for which it’s still negotiating the terms with private banks.

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Monetary authorities will phase out one-day repo notes that currently pay an interest rate of 40% and served as the institution’s policy instrument. Now, new Treasury notes will serve as the country’s primary instrument for administering monetary policy, Economy Minister Luis Caputo and Central Bank Governor Santiago Bausili said during a Friday afternoon press conference.

The moves aim to close what the two officials called one of the “faucets” of monetary emission that risked further fueling annual inflation already above 276%. Caputo and Bausili will meet with banks Monday to discuss technical details, they added.

“In the first phase, we closed the faucet of monetary issuance for the fiscal deficit,” Caputo said. “In this second stage we are closing the second source of monetary issuance, which is the interest paid by the central bank on interest-bearing liabilities.”

The shift will allow the Argentine central bank to move comfortably toward interest rates that exceed inflation — or real positive rates — without ballooning its own debt, Bausili added. The stock of one-day repo notes stood at some 17.5 trillion pesos ($19.2 billion) through June 27, according to Central Bank data.

“This restores very important autonomy to the central bank, because it can set the rate without worrying about the damage it may cause to its own balance sheet,” he said.

Positive real rates have long been a demand set by the International Monetary Fund, which Argentina owes $44 billion. An IMF official said it gave its stamp of approval to the measures Argentina announced Friday afternoon.

Caputo and Bausili emphasized that they won’t abruptly devalue the peso, nor will they accelerate the 2%-per-month pace at which they depreciate the currency, in a policy known as the crawling peg. For weeks, investors have expressed concerns that the government’s currency policy has become unsustainable as the monetary authority struggles to accumulate reserves.

“What’s not up for discussion is that getting out of currency controls today presents a risk to people. We’re not going to run risks we don’t need to,” Caputo told reporters.

Caputo said the third phase of Milei’s economic plan would include the end of currency controls but didn’t provide any specifics on timing or concrete targets that need to be reached for that to happen.

The announcement comes after Milei secured congressional approval for his ambitious reforms that aim to reintroduce income taxes and encourage foreign investment, among other items. Passing the bill after six months of horse-trading and tough negotiations with lawmakers demonstrated to investors that Milei has the wherewithal to get things done with only a legislative minority.

--With assistance from Silvia Martinez.

(Updates with comments on positive real rates, IMF comment in the fifth, sixth and seventh paragraphs)

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