BUENOS AIRES (Reuters) – Argentina’s central bank will slow the pace of devaluing the local peso, it said on Tuesday, after new data showed annual inflation slowing in December and as the central bank continued progress on the issue of inflation.
From February, interest rates, known as the crawling peg, will slow from a previous rate of 2% to 1% per month, reflecting “the consolidation seen in the inflation trajectory in recent months and expectations of a decline” . in inflation,” the central bank said in a statement.
Investors say the peso’s slower peg could extend a market rally fueled by President Javier Milei’s pro-market policies and hopes for new IMF funds.
Milei, who took office in December 2023, has launched a national austerity program, which has resulted in many government budget cuts. Although poverty rates have increased, price increases have steadily slowed due to eye-popping double-digit increases every month.
The central bank’s announcement came about an hour after official data showed monthly inflation rose slightly in December, although annual interest rates slowed further as Milei implemented tough spending cuts and austerity measures.
“We are crushing inflation,” Argentina’s Economy Ministry said in a message on X.
The monthly interest rate, which came in at 2.7% as forecast by analysts, meant South America’s second-largest economy ended Milei’s first full year in office with annual inflation of 117.8%. The rolling 12-month rate has been slowing from an April peak of nearly 300%.
Still, many Argentinians are feeling the pressure in their wallets, with housing and energy costs determining price increases in December.
“People say inflation is falling, but here we always get goods with different prices, prices rise and rise,” said 77-year-old retiree Juan Carlos Gonzalez, who works at a vegetable stand to make ends meet.
Analysts said seasonal price increases were behind the slight acceleration from monthly inflation of 2.4% in November, and markets greeted the figures as good news. Traders expect inflation to cool further in 2025.
The December figures “confirm that the disinflation process continues,” Economy Minister Luis Caputo said on X.
WHAT’S NEXT?
Traders are betting that Argentina’s central bank will also cut interest rates from the current 32%.
The central bank is expected to cut interest rates by about 500 basis points, brokerage Max Capital said ahead of the release of inflation data on Tuesday.
While the central bank’s board meets every Thursday, a rate cut could precede a government bond tender on Wednesday, the company added.
