August and September will see increased inflationary pressure for Argentina, Banco Central de la República Argentina warned, in the wake of recent volatility and the regulator's efforts to contain its impact on currency depreciation.
In an Aug. 20 press conference, central bank head Guido Sandleris said the Argentine peso, which fell around 24% last week, was still competitive, which gave the regulator "more confidence to make interventions," La Nación reported. Assets plummeted after Peronist candidate Alberto Fernández led incumbent President Mauricio Macri by 15.5 points in an Aug. 11 primary election.
Last week, the central bank sold more than $500 million in a bid to contain the currency, in a maneuver which also saw the Leliq central bank note-linked benchmark interest rate rise to 74.9%.
"With the rearrangement of the last days, the exchange rate seems to be consistent with the current economic scenario, and now it seems competitive," Sandleris said, adding that the central bank would "continue to maintain a restrictive policy and discretionary intervention as central instruments to reduce exchange rate volatility."
Meanwhile, the central bank boss also warned that inflation, as measured by a consumer index in August and September, would start to rise again after a period of several months which figures showed a decline, El Cronista reported.
In addition, Sandleris, who has presided over a monetary policy set in late 2018 to battle severe inflation and in cooperation with an International Monetary Fund program, said Argentine banks remained "solid and liquid." The central bank international reserves would not be used for other means than economic fundamentals, he added.
Meanwhile, on Aug. 20 the IMF said it was in "ongoing dialogue" with authorities in Argentina as a staff team was traveling to the South American country soon.
Government promises to meet IMF targets
New Argentine Treasury Minister Hernán Lacunza, who was sworn in on Aug. 20 following Nicolás Dujovne's resignation over the weekend, said President Macri's government would meet the fiscal goals agreed with the IMF. The organization is set to review the country for its next disbursement under the current bailout program "in the coming days," Lacunza said, according to El Cronista.
The new minister also said the government's priority was to "guarantee the exchange rate stability" of peso, which he said was "very far below its value."
The government had committed with the IMF to achieve a fiscal balance this year, with special permission to incur a 0.2% of GDP primary deficit solely on social purposes. Some analysts have worried that an economic measure package, which Macri announced after the primary elections, could jeopardize the lifeline secured with the IMF in 2018.
Dujovne resigned on Aug. 17, after the market turbulence and two rating agencies downgraded Argentina.
S&P Global Ratings downgraded the Latin American country's long-term credit ratings to B- from B, saying the market turbulence "has meaningfully weakened the sovereign's already vulnerable financial profile." Fitch Ratings also lowered Argentina's long- and short-term issuer default ratings to CCC/C from B/B, saying the market reaction to the primary vote results is weighing on the country's financing conditions and increases the prospects of a sovereign default.
