Argentina’s Central Bank announced it would reduce the crawling peg — the controlled devaluation of the Argentine peso — in half, from 2% to 1% a month.

In a communiqué issued Tuesday, the Central Bank said it made the decision due to the “consolidation observed in the inflationary trajectory during the last months, and the expectations of lower inflation.”

Milei had announced the government would halve the crawling peg if inflation remained at 2.5% in December 2024. On Tuesday, the government’s INDEC statistics institute revealed that prices rose by 2.7%, but the Central Bank went ahead with the cut anyway.

The government has been decreasing the value of the peso by 2% a month since December 2023 after devaluing the currency by more than 50%. Controlling the exchange rate of the U.S. dollar is one of the main tools the Milei administration has used to tackle inflation, analysts said. According to the Central Bank, it would continue “to play the role of a complementary anchor in inflation expectations.”

Several analysts have agreed that the over-appreciated peso is a problem for the economy, making it relatively less competitive. The International Monetary Fund (IMF) also urged the government to further devalue its currency. 

With net international reserves in the red, the government maintains strict currency controls, collectively known as the cepo, to keep the peso value fixed. It also sells U.S. dollars in the financial markets to prop up the peso’s value. In an interview with journalist Luis Majul, Milei said that if the IMF or “a very important investment fund” were to give Argentina US$11 billion, he would lift the controls.

The combination of the real appreciation of the official exchange rate and the reduction of the exchange rate gap, when other countries in the region devalued their currencies, led to prices of goods in Argentina being among the most expensive in the region.

A report by the PxQ consulting firm said that, one year ago, a basket of basic goods in Argentina was 36% below the regional average. In December, that same basket was 13% more expensive than in the other countries of the region.

The Central Bank could, however, reduce its interest rates but at a level that carry trade operations remain attractive for investors, momentarily avoiding the further depletion of international reserves.