The Central Bank of Argentina said on Monday that, if necessary, it will exceptionally assist the Treasury for the payment of the external debt, while the Government of Alberto Fernández negotiates an agreement with the creditors to extend maturities.
The monetary authority described in a statement the critical situation that the Argentine economy is experiencing, in recession since 2018, and offered a series of lines of action that it will adopt in terms of inflation and interest rates, among other variables, to help the formation of expectations.
According to the Central Bank’s diagnosis, the Argentine economy faces a “critical macroeconomic picture characterized by the coexistence of very high inflationary records and an intense and persistent recessive process, which has resulted in marked levels of unemployment, precariousness and poverty.”
Meanwhile, according to the statement, the shortage of foreign exchange has generated a “noticeable weakness” of the external sector, which has added a process of external indebtedness “clearly unsustainable” and, subsequently, a loss of access to voluntary credit and a “renewed flight of domestic capital”.
After marking those that in his opinion constituted errors in monetary policy during the Government of the conservative Mauricio Macri (2015-2019), the Central Bank stressed that the new Peronist Executive Alberto Fernández adopted measures aimed at addressing the most immediate manifestations of the crisis and stabilize the macroeconomy.
“In the context of the economic and social emergency described, and of a critical situation in terms of access to the external voluntary credit market, the Central Bank of the Argentine Republic considers it necessary to assist the Treasury exceptionally both in the eventuality of payments of debt abroad as, if strictly necessary and under prudent limits that respect the balance in the money market, financing in local currency, “the statement said.
The Central Bank said that in these circumstances “it is not possible to deploy a monetary policy strategy where specific objectives are set,” but that “it is prudent to move forward in defining a series of useful guidelines to help shape the expectations of the different economic actors. “
In this regard, he anticipated that it will prevent interest rates, still very high but that have begun to fall, from falling into real negative levels.
He also said that he will seek to “induce a gradual but sustainable reduction of the inflation rate based on a prudent monetary policy approach, consistent and coordinated with the rest of the government’s economic policy and income policy.”
In this context, he said he expects a slowdown in inflation towards “markedly lower” levels than in 2019, when prices advanced 53.8%.
The Central Bank once again defended a managed floating exchange rate policy as “a suitable instrument to avoid pronounced exchange rate fluctuations that generate negative effects on competitiveness, internal prices and income distribution”.
“The foreign exchange policy will also favor the preventive accumulation of international reserves, based on the genuine entry of foreign currency from the external sector,” the statement said.