Dollar: starts a new phase of economic policy and debuts the “crawling peg” in 1%

On December 13, 2023, just three days after assuming the presidency, the Central Bank (BCRA) announced the devaluation and the current exchange scheme, establishing a “Crawling Peg” of 2% monthly without a completion date. Now, this regime enters a new stage.

The objective of “Crawling Peg” to 1% is reduce inflation in the coming months. If this trend remains around 1% for two or three consecutive months, Javier Milei plans to eliminate the “crawling peg” and move on to a controlled flotation, that is to say that it will intervene before important jumps in the exchange rate.

When observing the future dollar, it can be seen that the gap between the “crawling peg” and the dollar contracts gradually expands: 0.86% in March, 1.5% in April, 1.98% in May and 2, 6% in June. These differences, although not significant, reflect the relationship with interest rates, which remain above 1% monthly.

Top, the look will be set in the legislative elections, since the market estimates a total flexibility of exchange restrictions after that event.

What is “Crawling Peg”

Exchange anchor is a strategy that seeks to contain short -term inflation to the Maintain the exchange rate below your equilibrium level. However, this policy has side effects that compromise economic stability in the medium and long term.

He “Crawling Peg “also known as administered devaluation, it is an exchange rate system in which a currency adjusts its value against another periodically and controlled. This scheme, classified by the International Monetary Fund (IMF) As an intermediate regime, it allows the Central Bank to gradually adjust the exchange rate, avoiding steep fluctuations that could destabilize the economy.

The principle is that If a key price of the economy such as the exchange rate – which has a strong impact on the prices of tradable goods, which are merchantly traded – moves at a slower pace than inflation, it will tend to drag the rest to the rest of prices promoting downward inflation.

A key edge for the change that is still pending is the need to sustain a balance between the monetary policy rate and the rhythm of “Crawling Peg”. Consultant analysts Personal Investment Portfolio (PPI) They pointed out that, by maintaining a greater differential between both variables, the attractiveness of instruments in pesos is increased, facilitating financing and accumulation of reserves.

In the long term, the government aims to maintain an appreciated exchange rate and avoid abrupt devaluations, such as the beginning of its management. According to consultants like Outlierthe current disinflation strategy requires a delicate balance to avoid risks associated with exchange appreciation and loss of competitiveness of the export sector.

Pro and cons of the “crawling peg” in 1%

The reduction of the rhythm of “Crawling Peg” has both positive and negative impacts in the Argentine economy.

Benefits:

• Lower inflation: By reducing the adjustment of the official dollar, the transfer is moderated at prices, strengthening purchasing power and business planning (Gustavo Ber).
• Greater credibility: Low inflation reinforces the economic program and feels bases for rates of a digit in the future.

Risks:

• Exchange appreciation: It can affect competitiveness and hinder the accumulation of reserves.
• External pressures: Although weight stability helps, a reversal in financial flows could generate vulnerability. For example, international factors such as those that are happening with the Trump tariff rise that implies an increase in inflation in the US, can put the local exchange strategy in suspense.
• Agro -export sector in crisis: High costs in dollars and low international prices reduce margins and complicate payment chains, aggravated by adverse climate.
• Uncertain sustainability: Energy and mining grow, but do not fully compensate for the lower competitiveness of agriculture.