BUENOS AIRES (Reuters) – Argentina's central bank will slow the rate of local peso depreciation, it said on Tuesday, after new data showed annual inflation slowed in December and as the central bank sees continued improvement in inflation. .
Starting in February, the rate, known as the creeping peg, will slow to 1% per month from a previous level of 2% due to “the consolidation seen in the path of inflation in the months gone, and as was expected to decrease. in inflation,” the central bank said in a statement.
Investors say the slower crawling peg for the peso could extend a market rally that has been fueled by President Javier Milei's pro-market policies and hopes for new money from the IMF.
Milei, who took office in December 2023, has launched a national austerity campaign, cutting many public budgets. While poverty levels have increased, price increases have gradually slowed from double-digit increases that occur every month.
The central bank's announcement came about an hour after official data showed monthly inflation rose slightly in December, although the annual rate was slowing as Milei pushed austerity measures on consumption and austerity measures.
“We are squeezing inflation,” Argentina's economy ministry said in a post on X.
The monthly rate, which came in at 2.7% as expected by analysts, meant that South America's second-largest economy ended Milei's first full year in office with inflation. annualized by 117.8%. The trailing 12 month rate has been trailing from an April peak of nearly 300%.
However, many Argentines are feeling the pinch on their wallets, with housing and utility costs following December's price hike.
“People say inflation is going down, but here we always get products with different prices, it goes up and up,” said retired Juan Carlos Gonzalez retired, 77-year-old, who works at a production plant to make ends meet.
Analysts said seasonal price increases were behind the slight acceleration from the 2.4% monthly inflation recorded in November, and markets welcomed the data as good news. Traders expect inflation to continue to cool in 2025.
The December data “confirms that the deflation process continues,” said Economy Minister Luis Caputo on X.
WHAT'S NEXT?
Traders have been betting that Argentina's central bank will cut the interest rate from the current 32%.
The central bank is expected to cut the interest rate by around 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 come ahead of the Treasury Department's offer on Wednesday, the company said.
