Milei says legislative win paves way for monetary policy pivot

Argentina's President Javier Milei said Friday that his government will change its monetary policy framework following his first major legislative victory that secured his landmark economic reforms.

“A change to the monetary regime is coming,” Milei told TV station LN+ without providing further details. “What we’re aiming for is that the ample monetary base doesn’t vary anymore.” 

Congress passed Milei’s package of reforms early Friday morning after six months of arduous negotiations, marking an inflection point for the outsider president that proves he can govern with a minority in a hostile legislature. Milei even convinced lawmakers to pass a controversial income tax measure that was in limbo until the final vote in the lower house. 

Since taking office December 10, Milei’s Central Bank has embarked on an aggressive monetary policy easing campaign, cutting the benchmark rate from 133 percent to 40 percent.

Ahead of Milei’s remarks, the International Monetary Fund foreshadowed earlier this month the government would take steps to make its exchange rate policy more flexible. Argentine officials currently devalue the peso at a pace of two percent per month, a policy many investors argue is unsustainable as it lags behind monthly inflation, which cooled to 4.2 percent in May. That’s eroded the currency’s competitiveness and has pushed exporters to hold onto their dollars until they see the peso devalue at a faster pace. 

Milei added Friday that while his government is comfortable with the central bank’s pace of accumulating foreign reserves, authorities could afford to lose up to US$4 billion in foreign reserves.

The strong peso also meant that Milei’s campaign to rebuild foreign reserves slowed to a near standstill in June. Monthly dollar purchases had topped US$2 billion through May, but the central bank went into reverse and sold US$46 million through June 27, according to Central Bank data.