Yahoo Finance Milei Says He Would Slow Crawling Peg If Inflation Cools Further
(Bloomberg) -- President Javier Milei outlined his vision for the future of Argentina’s currency policy Sunday night, saying the peso could weaken at a slower pace if inflation cools to a certain level.
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Milei’s remarks weren’t an immediate policy change and he made clear he wasn’t adjusting the current 2% monthly pace of the so-called crawling peg anytime soon. However, he said the peg would slow to 1% once monthly core or wholesale inflation reaches 2%. In May, wholesale prices rose 3.5% on the month while core prices climbed 3.7%.
“Once we get to 2% monthly inflation, we’re going to go to 1%, and then we’ll basically go to 0%,” Milei said in an interview with TN television, referring to the peg. He provided no timeline, citing a variety of unknown economic variables, such as monetary demand going forward. “When you get to 0%, you don’t have the rate of devaluation as an issue anymore.”
Milei’s spokesman didn’t respond to a request for comment seeking more clarity. The press office at Argentina’s central bank declined to comment.
The remarks are one of the few insights from Milei on managing the crisis-prone currency, which investors now worry has become overvalued again as the crawling peg policy is forcing the central bank to sell foreign reserves to maintain the current framework.
Even the International Monetary Fund expects Argentina to have a more “flexible” currency policy, according to its most recent program review of the country’s $44 billion program. While consumer prices are up more than 100% since Milei took office in December, the peso has only depreciated 59% at the official rate, creating a mismatch that’s made the cost of living more expensive in Argentina and discouraged exporters from shipping abroad as the currency loses competitiveness.
Milei added that the value of the real in Brazil, Argentina’s top trade partner and a competitor in key commodity markets, wouldn’t have an impact on his government’s foreign exchange policy.
“A problem with Brazil’s currency is a problem for Brazil, it’s not our problem,” Milei said, answering a hypothetical question. “We were the big devaluers of the 20th century and that didn’t make us more competitive.”
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