Cornered by the lack of dollars and by an inflation which, three months before the PASO, is revealed as unstoppable, Minister Sergio Massa rushed a package of measures this weekend and a press announcement on Sunday morning. From the list of interventions published by the Ministry of Economy, there have been some in the Municipality skeptical about the effects which can have two key aspects for the market: raising rates and “administering” the daily rate of devaluation.
Specifically, the Central Bank would once again raise the reference rate for the economy to bring it from the current 91% to 97%. about 600 basis points, in a “slightly” faster move than last month, when bank yields increased by 1,000 basis points, a week after the March inflation announcement and in response to a parallel dollar surge, which grazed 500 dollars.
Furthermore, amid a persistent decline in reserves, both gross and net, and with a monetary authority unable to reverse the dollar red this month due to its sell-off in early May, the government has announced that the Central “will increase intervention in the foreign exchange market will handle the pace of the creeping peg” (daily devaluation).
Neither of the two measures has yet been made official. The Central Bank has not specified whether the board of directors has already met in order to move forward in the direction that Massa previously communicated, but on the market they expect both of these measures, more financial if you will, also as the others have announced, they have a neutral effect on the current state of the economy and prices.
“At first glance, this has zero impact.”said Fernando Marull, of FM y Asociados, when asked early Sunday by clarion. “Rate hike, ‘central market unit.’ It all sounds like more fiscal spending,” she said.
If the rate hike that the Government has allowed to transcend materialize, the fixed conditions would become yield 154.5% per annum of effective rates and just above 8% per month. In other words, with this increase, bank placements would not exceed the inflation recorded in April.
Cohen’s economist, Martín Polo, said: “Raising the rate a bit after inflation has risen so strongly is not much. The urgency is for people to stay at the weight, the demand for pesos does not decrease and inflation accelerates even more. So on that front I would say it’s good that the rate goes up, despite of course the impact that will have on the level of activity later on and also on the monetary issue itself.”
Polo warned that: “All the measures that have been announced are what they have done. What happens is that they have no power to change expectations nor firepower with such low reserves. Nor do they have the power to change expectations with such a messy government,” she said.
Along the same lines, Gabriel Caamaño Gomez, of the Consultora Ledesma, stated: “Clearly these measures they are completely insufficient. If you want to curb inflation, you need a stabilization plan. We already know. We know that the government has neither the pretension, nor the credibility, nor the time horizon to do so”.
The economist warned that the official exchange rate it’s already late on the price increase and that the announced measures not only do not correct expectations, but in the long run worsen them: “Actually they say they will intervene more on the official one, more in parallel and they have no reservations and therefore “They will have no reservations. Today the only thing Massa can do to buy time is to take dollars, which of course is going into debt, putting the next administration in debt”.
Source: Clarin
