Despite Argentina’s fragility, Financial conditions have improved in the last month, due to the devaluation jump on December 13th. However, Financial variables remain in a “severe stress” zone. and in the future the situation could worsen again. This is established by a joint report created by the Argentine Institute of Financial Executives and the consultancy firm Econviews, which survey the ICF (Financial Conditions Index) on a monthly basis.
Despite Argentina’s fragility, Financial conditions have improved in the last month, due to the devaluation jump on December 13th. However, Financial variables remain in a “severe stress” zone. and in the future the situation could worsen again. This is established by a joint report created by the Argentine Institute of Financial Executives and the consultancy firm Econviews, which survey the ICF (Financial Conditions Index) on a monthly basis.
In the last month of the year, The ICF improved after four consecutive months of worsening. “The decision to be made the official dollar from 366 to 800 pesos compressed the gap and reduced the implicit depreciation (making it a fact) in futures contracts. Added to this is the positive response of bonds and stocks to Javier Milei’s victory in November: since the ICF measures monthly averages, the full impact of the rally was observed in the December index,” the report indicates.
However, The index remains among the three worst records since 2005. The report highlights this the marginal improvement comes from reducing the gap exchange rate which “exited the high stress zone (a deviation of less than -10 compared to the historical average) after 32 months. This had not happened since April 2021, when the gap was 63%”. Despite the partial improvement, the report warns: “exchange rate problems are far from resolved.”
“The financial conditions index is in a stress zone (negative) since August 2019, when the local situation lost almost 90 points in a few months due to the surprising result of the primary elections in Argentina. This year’s elections cost the index another 100 points, distributed between the declines of August and October since the result has never been as definitive as in that year”, underlines the work.
The index considers external and local conditions. The local subindex improved in part thanks to the rally that Argentine stocks and bonds have had since November. “The rally in Argentine assets began in November with Milei’s run-off victory, but the rally was fully captured by the ICF in December,” the report highlights.
“However, In the last days of the month the country risk rose to around 2,000 points AND the exchange rate gap widenedtherefore the sub-index could worsen in January,” he warns. At the same time, he points out that the lowering of rates, both by the Central Bank and the Treasury, to contribute to the disarmament of Leliq also helped the improvement of the local sub-index.
Meanwhile, inflation marked once again: “The worst component of the sub-index both in historical terms and compared to the previous month was monthly core inflation, which after the devaluation accelerated from 13.4% to something close to 25%,” indicates the work . Core inflation accelerated in December to levels unprecedented since 1991, upon exit from hyper.
SN
Source: Clarin
