The Central Bank of the Argentine Republic (BCRA) announced a reduction in the pace of monthly devaluation of the exchange rate. This measure, far from being a strictly technical decision, reflects an approach that prioritizes immediate political objectives over economic fundamentals. In a context of still high inflation and a lagging exchange rate, this decision could have significant consequences for the national economy.
2024 closed with accumulated inflation of 117.8%, according to data published by INDEC. December recorded a monthly increase of 2.7%, in line with market projections, but higher than the government’s expectations, which anticipated 2.5%. Core inflation, a key indicator that excludes volatile components such as food and energy, showed an acceleration to 3.2% from 2.7% the previous month. These data underline that inflationary pressures continue to be structural.
In parallel, the inflation index of the Autonomous City of Buenos Aires (CABA) marked an increase of 3.3% in December, with an accumulated annual figure of 136.7%. The disparity between the national figures and those of CABA can be attributed to the differences in the weighting of consumption items within each index. While INDEC uses a consumption basket that has not been updated as planned, CABA’s figures reflect a methodology more adjusted to current reality.
The announcement of the “crawling peg”: a decision that neither surprise
The BCRA’s announcement to reduce the monthly “crawling peg” from 2% to 1% as of February 1 has generated an intense debate in the economic and financial spheres. This decision was presented as part of the original outline of the economic program, which provided for a reduction in the rate of devaluation once inflation converged with the “crawling peg” for three consecutive months. However, reality contradicts this justification: far from approaching 2% monthly, inflation showed an acceleration in the last month of the year.
The president himself had suggested that inflation of 2.5% or less in December would allow this measure to be implemented. However, December results belie this narrative, with headline inflation at 2.7% and core inflation even higher. This reinforces the perception that the decision had already been made in advance, driven by political considerations.
Exchange rate delay and its structural implications
The exchange rate anchor is a strategy that seeks to contain inflation in the short term by keeping the exchange rate below its equilibrium level. However, this policy has side effects that compromise economic stability in the medium and long term. The restrictions on accessing the official exchange rate, as well as the need for constant interventions in financial dollars by the BCRA, are symptoms of a distorted exchange market.
In this context, the competitiveness of Argentine exports is eroded. Every time domestic prices increase faster than the official exchange rate, national goods and services become more expensive in relative terms, affecting the country’s ability to generate foreign currency.
Marking these exchange imbalances does not imply advocating a devaluation, but rather a free exchange rate so that all prices in the economy tend to balance and thus establish the foundations for healthy and sustainable growth.
The impact on the productive structure and the labor market
The artificial delay of the exchange rate as an inflationary anchor also has profound consequences on the productive structure. By increasing costs in foreign currency, investments in industrial and technological sectors are discouraged, promoting a primarization of the economy. This dynamic also affects the labor market, favoring an increase in informal and precarious employment to the detriment of higher quality jobs in key productive sectors.
The role of the energy sector and future expectations
The government is confident that energy export revenues from the Vaca Muerta development will ease external tensions. An energy surplus of approximately $15 billion is projected by 2025, a figure that could improve external accounts in the short term. However, this dependence on the energy sector does not address the structural weaknesses of the economy, such as the lack of productive diversification and the limited absorption capacity of formal employment.
Conclusion: an approach that prioritizes the political over the economic
The decision to reduce the “crawling peg” seems to respond to a political strategy aimed at showing immediate results in an election year, sacrificing long-term economic stability. Although this measure can temporarily contain inflation, the costs associated with exchange rate delays are high: lower competitiveness, productive distortions and a precarious labor market. Argentina needs a more coherent and sustainable exchange rate policy that allows building the foundations for balanced and sustainable economic growth.
Source: Ambito
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