The slowdown in inflation over the past month presents the central bank with a dilemma: at what rate it should “let the wholesale dollar run” and at what level it should set the economy’s key rates so that the financial front remain stable? The agency anticipated that it expects this year to end with a GDP of 5% and that placements in pesos will maintain a positive direction in the coming months.
In its latest Monetary Policy Report (IPOM), the organization chaired by Miguel Pesce said: “Economic activity in Argentina continued to expand during the third quarter, at a faster pace than in previous quarters. From the point of view of the application has been observed a great dynamism of private consumptionwhile investments remained around the maximum levels of 2017”.
Despite the indicators of a slowdown in activity that have begun to appear in recent months, the Central said: “GDP will grow by more than 5% annually in 2022, largely exceeding the forecasts at the beginning of the year”.
In this context, the BCRA explained that the moderation of the inflation rate recorded in November is the product of “a series of measures adopted by the national government and by the BCRA to contain the acceleration of prices occurred in the first part of the third quarter”
In this sense, he listed it the decision to leave the interest rate fixed at around 107.5% effective per annum served to promote “financial and currency stabilityand reinforce the trend towards a gradual deceleration of inflation over the medium term”.
“In an economy like Argentina’s, with a relatively small credit channel, Positive real interest rates act primarily by encouraging saving in pesos. Its anti-inflationary action therefore consists largely of contributing to foreign exchange and financial stability, and must be integrated with other economic policy tools to reduce inflationary inertia,” reads a statement from the agency.
Along these same lines, Pesce defended the interventions that the Central has made in the bond market since the peso debt crisis in the mid-2000s and said it was “for the purpose of promoting greater liquidity, depth and transparency in sovereign debt markets.” .
Regarding the rate of devaluation, the institution has confirmed that the intention is let it run at almost the same rate as monthly inflation. “The Central Bank has continued to calibrate the nominal exchange rate of change, placing it at a level consistent with the inflation rate, in order to preserve external competitiveness and encourage the accumulation of reserves, integrating the exchange rate policy with the continuous improvement of the existing regulatory framework of the foreign exchange market”.
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Source: Clarin
