Inflation data for November, lower than even the most optimistic projectionsit gives air to the Central Bank to “trample” the official exchange rate and puts it in front of the dilemma of whether to start a process of reducing interest rates, just at a time when economic activity was beginning to show signs of a slowdown.
The body chaired by Miguel Pesce has already taken note of the surprise communicated last Thursday by INDEC: after 4.9% inflation Recorded in November, the lowest level since February, last week the Central Bank began to slow down the daily rate of devaluation, which had reached 6.8% per month last month.
On average, during the last five rounds, validated a official dollar rise of 5.6% and the expectation is that it will continue on this path in the coming weeks.
In recent months, the three key variables of the local financial scenario: inflation, the interest rate and the monthly rate of devaluation had moved in a coordinated manner. Currently, the Badlar rate it remained at 5.8%, against a devaluation which closed in November in the 6.8% area, with inflation at 4.9%.
Now, when activity has begun to show the first signs of a cooling down, the Central is evaluating whether to recalibrate the crawling peg rhythm and the level of rates to align them with the new inflationary level.
It will not be easy gymnastics: in the city they agree that although Sergio Massa’s plan to halt inflationary escalation through a new price control program appears to have been effective in November, in December inflation will be above 5% and this will be a level that will be difficult to overcome in the first months of 2023.
As a first measure, the Central Bank has curbed the level of daily devaluation, and has come out to clarify that it does not plan to reduce the interest rate from the level of 75% per annum to which it had decided to bring it last September.
The monetary authority considered that “maintaining the reference rate unchanged will help consolidate financial and currency stability and reinforce the trend towards a gradual slowdown in inflation in the medium term”.
Thus, returns on peso placements, which last month made real gains for the first time in a year, would also be positive in the last month of the year. “The recent surprise slowdown in inflation has meant that rates have been remarkably positive in real terms. In November, the LELIQ rate was as high as 15.6% (TNA) in real terms, while the Lede in March yielded 20.4% (TNA) above inflation,” explained Nery Persichini of GMA Capital.
The economist added that the Central’s decision to leave the rate unchanged “will help continue to contain inflation and especially the financial dollar, Particular attention should be paid to the dynamics of remunerated liabilities and the interest they generate, since these now accrue interest faster than the rate of inflation”.
Along the same lines, Fernando Marull, of FM y Asociados, said that it would not be “wise” to face a reduction in the level of rates “because it would upset the monetary balance in the coming months. Furthermore, we enter summer 2023, and we already know that they will be tough months, with “many pesos” and “a few dollars”.
Marull stressed that “the risk of lowering the rate soon is a parallel leap in the dollar” and that the central bank should “confirm a drop to 5% in December and January to ‘test’ some drops”. The financial dollar returned to a relative calm so far in December and stacks up about 3% this month, behind rising prices in the economy.
Source: Clarin
