Javier Milei doubles down on Argentina’s unorthodox currency policy

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Argentina’s libertarian President Javier Milei is slowing the monthly devaluation of the peso, doubling down on an unorthodox currency policy that he says is essential to ending the country’s inflation crisis.

Milei last year allowed the peso’s official exchange rate to weaken by just 2 per cent a month, or 22.8 per cent over the year, despite consumer prices rising 117 per cent in 2024 compared with 2023. That caused the peso to appreciate more than any other currency in real terms last year, fuelling concerns about the competitiveness of Argentine businesses among some economists.

The so-called “crawling peg” devaluation will slow to 1 per cent a month starting in February, Argentina’s central bank said on Tuesday.

The move aims to consolidate a dramatic fall in monthly inflation that has been Milei’s biggest achievement since he took office amid a dire economic crisis in late 2023.

The month-over-month inflation rate has fallen from a peak of 26 per cent in December 2023 to 2.7 per cent in December 2024, largely thanks to Milei’s sweeping austerity programme. Authorities argue the 2 per cent devaluation has become one of the main drivers of continued price pressures.

“With the attention set on midterm elections [in late 2025], where Milei-backed candidates will likely perform well, officials want to ensure that inflation remains under control,” said Luciano Sigalov, an analyst at Bull Market Brokers in Buenos Aires.

Milei has described slowing the devaluation as an important step on the road to removing Argentina’s strict currency and capital controls, a top concern for foreign investors, which he has pledged to do in 2025.

However, the slower crawling peg will also hasten the real appreciation of the peso, and delay the rebuilding of Argentina’s central bank negligible foreign currency reserves, which “the market has identified as the biggest risks of Milei’s programme”, said Nery Persichini, head of research at financial services firm GMA Capital.

Rapid real peso appreciations under previous Argentine governments have ended in abrupt devaluations and economic turmoil, when the central bank ran out of cash to prop up the strong currency.

Milei has argued that a faster devaluation of the peso would set off a fresh bout of inflation, derailing the successful macroeconomic stabilisation that allowed Argentina to emerge from a recession in the third quarter of 2024.

He says Argentina must retain competitiveness by deregulating the economy and lowering taxes and corporate borrowing costs, rather than devaluing the currency.

The weakening of the real in neighbouring Brazil and low global prices for Argentine exports such as soy, which could hurt export revenue, as well as the strengthening of the US dollar, will put more pressure on Milei’s currency strategy in the coming months, Persichini said.

“But the government’s success on inflation has [saved] Argentina from a bigger crisis and that’s what they want to keep prioritising,” he added. “They believe this is a risk worth taking, and it’s a risk they can manage.”