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ARGENTINA: BCRA Slows FX Crawling Peg To 1% Per Month

ARGENTINA
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  • Following yesterday’s December CPI inflation data, the BCRA announced that it will slow the peso’s crawling peg to 1% per month, from 2%, starting Feb 1. In a statement, the central bank said that recent monthly inflation and high frequency data confirm an expectation of lower price pressures. It also said that the exchange rate continues to act as an anchor complementary to inflation expectations.
  • The move had been flagged toward the end of last year, when officials said that they would slow the peg to 1% per month if monthly inflation remained steady through year-end. In recent days, there had also been increasing noise about the possibility of a smaller crawling peg, with President Milei floating the idea that the peg could be tightened if CPI data confirmed the decelerating trend. The data revealed that headline prices rose by 2.7% m/m last month, with the annual rate of inflation slowing to 117.8% y/y, from 166% in November.
  • Following the adjustment in the crawling peg, BBVA says that the next step is probably a rate cut, most likely of a magnitude of 3-5 percentage points. JP Morgan also expects the peg change to be accompanied by a new interest rate reduction in the coming days, while Goldman Sachs says that the tight capital controls that persist in the economy will remain over the next few months.
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  • Following yesterday’s December CPI inflation data, the BCRA announced that it will slow the peso’s crawling peg to 1% per month, from 2%, starting Feb 1. In a statement, the central bank said that recent monthly inflation and high frequency data confirm an expectation of lower price pressures. It also said that the exchange rate continues to act as an anchor complementary to inflation expectations.
  • The move had been flagged toward the end of last year, when officials said that they would slow the peg to 1% per month if monthly inflation remained steady through year-end. In recent days, there had also been increasing noise about the possibility of a smaller crawling peg, with President Milei floating the idea that the peg could be tightened if CPI data confirmed the decelerating trend. The data revealed that headline prices rose by 2.7% m/m last month, with the annual rate of inflation slowing to 117.8% y/y, from 166% in November.
  • Following the adjustment in the crawling peg, BBVA says that the next step is probably a rate cut, most likely of a magnitude of 3-5 percentage points. JP Morgan also expects the peg change to be accompanied by a new interest rate reduction in the coming days, while Goldman Sachs says that the tight capital controls that persist in the economy will remain over the next few months.