The rise in interest rates carried out in recent days by the Central Bank and the Treasury represent a relative effectiveness in curbing inflation although if they are able“cool” the dollar in the short term. This was stated by a private report known in the last few hours.
“Given the characteristics of the Argentine economy, at this particular moment the interest rate works on few transmission channelsso its effectiveness in lowering inflation is highly questionable”, The stock company, GMA Capital, specified through a report.
It states that “the interest rate mechanism, which operates on the savings and investment decisions of the private sector, does not work 100% due to difficulties in investing in real economy and low financial depth From the market”.
GMA Capital indicated that “the credit path does not move the ammeter with a private credit/GDP ratio of less than 7% (among the lowest in the world), but it does operate to facilitate or hinder the portfolio dollarization process”. In this regard, the work considered that the government intends to take the system towards a “single rate market.”
Last week the Central Bank decided to raise the interest rate for passive repos by 200 basis points, while it raised the rate corresponding to Common Funds from 75% annual nominal to 85%. The previous week the yield for term deposits had already improved to levels above annual inflation.
The report considered thatThe different channels that the economy would have to stop the rise in prices or the escape of the exchange rate, do not operate normally in Argentina because of the controls and the stocks.
“The exchange rate channel, referring to the official price and the adjustment of the demand and supply of tradables, is a creature extinct by stocks. Finally, the one of expectations, related to the credibility of the Central Bank and its ability to anchor what we all think is going to happen with inflation, he is devastated“, he claimed.
For this reason, he assures thatBeating inflation with the rate alone is a distant dream” although he states that “attempting to control the market price of the dollar (or sustain the value of the peso) due to a higher financial cost might result in the short term although the rest of the instruments receive blows”.
“Without a solid economic plan, or a change in expectations and confidence levels, the use of the rate only enhances the imbalances in the Central Bank’s balance sheet, an inheritance (along with that of maturities in pesos) on the which the next government should already start working on,” the report concluded.
With information from Argentine News
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