President Javier Milei’s administration is starting to shift its focus from solely crushing inflation to a more balanced act as growth, jobs and his approval ratings struggle to pick up.

Argentina’s Central Bank allowed the currency depreciate over the past three months while the nation’s Treasury is letting more liquidity flow through the economy as an array of indicators illustrate patience is wearing thin after more than two years of harsh austerity. In doing so, Milei is taking a less rigid approach to his fight against inflation, his chief accomplishment, in a bid to counter negative voter perceptions of the economy.

The amount of cash in circulation, or the monetary base, rose an average of 5.4 percent in July from June, more than twice the pace of monthly inflation. That shift was mainly driven by a drawdown of Treasury deposits at the Central Gank, and reversed a lengthy stretch of monetary base growth below or in line with price hikes, according to official data.

The peso has also weakened 9.1 percent against the dollar since mid-April, the most in emerging markets. That comes after Argentina’s currency trailed inflation for much of Milei’s first two years in office.

Until recently, the libertarian leader’s overriding objective has been reducing inflation as much as possible via spending cuts, currency controls, higher interest rates and eliminating money printing. It worked: Annual consumer price gains slowed to 34 percent after reaching as high as 289 percent just two years ago.

But Argentines are losing jobs, growth is slowing and Milei’s approval rating is mired near the lowest levels of his Presidency a little more than a year from the next election. In that context, policy-makers see room to pump more pesos into the economy to reignite growth and, at the same time, prevent short-term interest rates from skyrocketing like they did last year, which created a cash crunch.

“We see that the conditions are in place to move ahead with the remonetization of the economy, because we have indicators showing that households and companies want to hold larger peso balances,” Central Bank Governor Santiago Bausili said last week at a press conference.

Breaking from norms, Argentina’s Treasury didn’t deposit extra earnings last week from a local debt auction at the Central Bank. Instead, officials distributed the 3.8 trillion pesos (US$2.5 billion) among commercial banks to contain a spike of short-term interest rates.

“Ongoing softness in growth and contained inflation pressures provide scope for the government’s economic team to continue balancing disinflation objectives with other policy priorities like growth and external resilience, as it’s been doing for the past few months,” said Jimena Zuniga, Argentina economist for Bloomberg Economics.

Economists see the strategy as an attempt to stoke liquidity into a stagnant economy where lending has dried up and consumer spending remains weak as wages trail inflation. Those developments contradict Bausili’s claim that Argentines want more pesos, and some analysts warn more money could either fuel inflation or that Argentines will convert any extra pesos into dollars ahead of the 2027 election.

“I’m worried that this move isn’t justified by stronger money demand,” said Juan Manuel Pazos, chief economist at local broker One618. “My gut tells me they are loosening monetary policy at a time when seasonality in the official FX market is becoming less favorable and we are getting closer to the start of the electoral cycle.”

Even some of Milei’s staunchest supporters caution he needs a more balanced approach heading into the election cycle beyond looser monetary policy. Argentina’s gross domestic product likely contracted in the second quarter, according to the Central Bank’s latest survey of market analysts that marked a sharp revision downward. The economy has lost 28,000 private-sector employers and multiple polls in July showed a decline in Milei’s approval rating.

Economist Ricardo Arriazu has long backed the libertarian but warned in late July that opening up Argentina to more foreign trade could create “pockets of unemployment and poverty,” arguing that the government should identify sectors and workers that may need support during the transition.

Other business leaders, including Martín Rappallini, head of the Argentine Industrial Union, and Roberto Méndez, chief executive of tire retailer Neumen, have called for tax incentives, subsidised credit and even some protection from imports to support industry and revive lending.

Milei and his ministers often argue that workers who lose jobs in Argentina’s less competitive industries like manufacturing will shift into thriving sectors like energy, agriculture and mining. Arriazu isn’t convinced it’s so seamless. He sees Greater Buenos Aires – the area with the most voters – as the most likely loser of Milei’s trade policies.

“In similar experiences, people don’t relocate – or they take a long time to do so,” Arriazu said. “We need to think about how to address the problem.”

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by Ignacio Olivera Doll, Bloomberg