Argentina Slows Peso Devaluation as Inflation Eases

The Central Bank of Argentina announced a reduction in the peso’s controlled depreciation rate on January 14, 2025. The bank will slow the monthly crawling peg from 2% to 1% starting February 1.

This decision follows the release of December’s inflation data, which showed a slight increase to 2.7% month-on-month. The move marks President Javier Milei’s first adjustment to currency policy since taking office over a year ago.

Milei’s administration had pledged to reduce the crawling peg if inflation remained stable through the end of 2024. The central bank stated that this adjustment continues to serve as an anchor for inflation expectations.

Argentina’s annual inflation rate for 2024 fell to 117.8%, down from nearly 300% the previous year. This significant decrease reflects the success of Milei‘s economic reforms.

The president’s popularity remains high as mid-term elections approach in October, largely due to his inflation-fighting efforts. Despite the positive inflation trend, challenges persist.

Argentina Slows Peso Devaluation as Inflation Eases. (Photo Internet reproduction)

The peso has appreciated over 40% against the US dollar in the past year. This strength, however, may not accurately reflect Argentina’s economic reality. Some economists warn that the current situation could lead to a severe crisis if not addressed.

Mixed Results and Future Challenges

Milei’s economic shock therapy has had mixed results. While inflation has decreased, it has come at a social cost. About 35,000 state employees lost their jobs, and real wages fell by at least 10%. Manufacturing activity has also slowed significantly.

The government faces a delicate balance in 2025. It must spur economic growth and focus on job creation while maintaining its anti-inflation stance. Milei is also close to securing another loan tranche from the IMF, adding to Argentina’s $44 billion debt burden.

Experts project Argentina’s economy to grow by 4.5% in 2025, with inflation expected to cool further to 25.9%. However, the country remains vulnerable to external shocks and sudden losses of investor confidence.

The administration may need to consider additional measures to drive growth beyond post-crisis recovery levels. As Argentina navigates these economic challenges, the world watches closely.

Many are eager to see if Milei’s libertarian approach can deliver sustainable prosperity. The coming year will be crucial in determining the long-term success of his bold economic reforms.