The 7.7% jump in inflation in March triggered a rise in the dollar which, in turn, generated an accelerated rise in prices in the last week of April.
That behavior was decisive in generating the escalation of the cost of living index which led to the worrying 8.4%the highest monthly percentage in 21 years, surpassed only by the April 2002 record (10.4%).
The data shocked everyone and the Minister of Economy, Sergio Massaran a handful of ads Sunday at 9am, some of which start running today.
A six-point increase in the interest rate for fixed-term deposits (to 97% per annum, 8.08% per month and 154% effective per annum) appears in the tip of announcements with a clear objective: Trying to get peso holders to deposit for a specified period and not buy dollars or goods to hedge against the inflationary jump.
This increase would be complemented with something more than what the Central Bank has already done in the financial market, ie “increase foreign exchange intervention” and “manage” the pace of peg crawling.
In other words, the central stands for intensify the sale of dollarised bonds (AL30) in an effort to curb financial dollars and presumably also bring the official dollar upgrading to the level of inflation.
Will the official dollar’s rate of increase now accelerate, which would encourage another price hike? food prices?
It can therefore be thought that if the reference interest rate rises to 8% per month, the wholesale exchange rate would also rise by 8%; in April it had been 7.7%. Subsequently, the Central moderated those adjustments in an unsuccessful attempt to remove the incentive to increase food prices.
In this sense, the government addressed in April one of the worst results: it refuses to devalue to avoid a jump in the prices of basic products, but the food product was what, with the increase of 10.1%.outperformed the general index.
A result that has been evident for months and traditional in times of uncertainty has been achieved: companies and businesses are looking for they pay their imported inputs at the official dollar of $229 but set financial prices of $469.
It’s gap of 104% is what reveals Massa to become the thermometer that corrects for lack of confidence from the official word on foreign exchange to the point that in his last radio report he spoke of the dollar’s surge as if the free-financial system were the only one in effect.
But, words aside, the economic agents (salaries, traders, financial operators and population) maintain their expectations with respect to the outflow of consequences of the inflationary disaster crystallized at 8.4% in April.
The Ministry of Economy has announced that the Central Market will have a new role in price monitoring, that it will lower Now 12 tariffs to encourage consumption (amid a loss of purchasing power?), that it will suspend anti-dumping measures favor some imports. And a relief so that SMEs can settle their debts with the AFIP. Everything to develop.
The centerpiece of the announcements was the third point which read verbatim: ” Speed up deals with the International Monetary Fund, China Swap and guarantee via BRICS Brazil (Massa in Beijing on May 29)”.
One possible interpretation is quite obvious and is the government’s desperation to obtain dollars which, in the end, is the main measure try to calm the foreign exchange market and calm prices a bit to arrive at August 13, the date of the internal elections, the PASS, with the dollar in a certain calm.
Adding to the certainty of financial operators that the government will try to avoid at all costs a significant devaluation of the peso before the year-end elections is added that without the dollar advance from the IMF, the reserves of the Central Bank they won’t get stronger.
An economic situation characterized by a government with very few dollars and many pesos has once again reached a defining moment.
And even faster because he is Minister of the Economy his sought-after presidential bid is playing hardball.
Without new hard and fast dollars in Central’s reserves in the coming weeks (first week of June?) the possibility of maintaining the few exchange rate certainties that exist will gradually fade. Massa’s “arrival” floor is in a wind tunnel.
Charles Arterburn is a seasoned business journalist for News Rebeat, where he provides comprehensive coverage of the latest trends and developments in the world of finance and economics.