Guido Sandleris, president of Argentine central bank, face an unusual problem. the Argentine weight In recent months he has recovered so much that he is conducting tests with a currency exchange designed to help the bank rebuild its credibility.
The band was created in September with the approval of the International Monetary Fund (IMF), when the weight I was losing half of its value in the middle of a massive sale. It had to allow a slow and controlled weakening of the currency, which now fluctuates within a certain interval that is regulated daily. If it deviates above or below this range, the Argentine central bank It can, but is not obliged to sell or buy dollars to intervene in the exchange rate.
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Few economists expected the weight became one of the emerging market currencies with better performances. It rebounded 10% against the dollar from the implementation of the plan – which also meant freezing the amount of pesos in circulation and keeping interest rates close to 60% – a high global figure. While a stronger currency helps Argentina fight inflation and adjust its external accounts, it could again harm the bank's credibility depending on Sandleris management.
"We believe that the central bank must clearly communicate its strategy, otherwise its credibility could be compromised," said Priscila Robledo, economist at Continuum Economics. "The purchase of dollars to increase the liquidity of the weight and at the same time to pay extremely high rates to reduce the monetary base does not seem to be the best strategy".
REDUCTION OF RATES?
So far, Sandleris' efforts to defend the band have not worked. the Argentine central bank he bought $ 190 million from January 10, but the weight it remained mainly below the defined interval. On Wednesday, the currency closed at 37.5 US dollars, within the range of the band.
The fastest reduction in interest rates it could increase indebtedness and economic growth while reducing the demand for pesos on the market. But that strategy involves its risks. The former president of central bank, Federico Sturzenegger, lowered interest rates in January 2018, and then had to increase them drastically in April. He resigned in June, admitting he had lost credibility.
"What they do not want is to lower rates at a time when confidence has been restored only to raise them again if the dollar rises," said Sebastián Martínez, a macroeconomic analyst at the Argentine consulting firm ABECEB.
Much of the recent profits of the weight they are simply a correction of last year's losses, combined with an increase in risk appetite for global investors this year. On a national level, inflation is slowing down and the president, Mauricio Macri, market favorite, showed an increase in approval ratings.
However, there are good reasons to expect weight to weaken. Argentine is in the midst of a recession, inflation should close around 30% this year and the uncertainty of the October presidential election could trigger another currency crisis.
"They are going carefully but I think they will continue to buy," said Soledad Tortarolo, head of fixed income research at Allaria Ledesma & CIA in Buenos Aires. You expect the bank to increase the daily amount you can buy for US $ 150 million. "It is important that they defend the area of non-intervention."