President Javier Milei Outlines Future Currency Policy for Argentina

On Sunday night, President Javier Milei shared his vision for Argentina’s future currency policy, suggesting that the peso might depreciate more slowly if inflation cools to a specific level. Despite these remarks, Milei clarified that there would be no immediate policy shift, maintaining the current 2% monthly rate of the so-called crawling peg.

Conditional Reduction of the Crawling Peg

Milei mentioned that the crawling peg rate would decelerate to 1% once monthly core or wholesale inflation hits 2%. In May, wholesale prices increased by 3.5%, while core prices rose by 3.7%. “Once we achieve 2% monthly inflation, we’ll reduce the peg to 1%, and eventually to 0%,” Milei stated in an interview with TN television. However, he did not provide a specific timeline, citing various uncertain economic factors, such as future monetary demand. “When you reach 0%, the rate of devaluation is no longer an issue.”

Milei’s proposal on inflation and the crawling peg suggests aggressive measures to stabilize economic volatility, according to WSJ Subscription Offers.

Lack of Clarification from Officials

Milei’s spokesman did not respond to requests for further clarification. The press office at Argentina’s central bank also declined to comment. These remarks offer one of the few insights from Milei on managing the volatile currency. Investors worry it has become overvalued. The crawling peg policy forces the central bank to deplete foreign reserves to sustain the current framework.

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IMF’s Perspective and Economic Impact

The International Monetary Fund (IMF) anticipates Argentina adopting a more “flexible” currency policy. This is according to its latest review of the country’s $44 billion program. Since Milei assumed office in December, consumer prices have surged by over 100%. Meanwhile, the peso has depreciated only 59% at the official rate.

Independence from Brazil’s Currency

Milei emphasized that the value of the real in Brazil, Argentina’s leading trade partner and a competitor in key commodity markets, would not influence his government’s foreign exchange policy. “A problem with Brazil’s currency is Brazil’s problem, not ours,” Milei said, responding to a hypothetical question. “We were the major devaluers of the 20th century, and that didn’t make us more competitive.”

President Milei’s comments shed light on his strategic approach to Argentina’s currency policy, reflecting a cautious but potentially transformative stance.

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