Argentina Macroeconomic Perspectives

Argentina: Trade war between US and China continued escalating, affecting the exchange rate, however, Central Bank actions were sufficient to calm the domestic market

• The exchange rate hit its highest level following April´s peak, driven by the effect of the yuan´s depreciation and strengthening of the US dollar worldwide. However, the CB showed it has tools, i.e. futures selling and rising Leliq rates, to face this scenario and avoid affecting local confidence on the peso. Hence, as international markets gradually calmed, following China´s yuan intervention, the peso slightly recovered. Although it has depreciated close to 9% in the past month, political uncertainty days before Primaries has had a lower than expected effect, as the majority of the FX variation occurred in the past week due to external factors.
• The latest CB´s market survey reflected exchange rate stability and decelerating inflation expectations. The inflation path was similar to the previous month´s report, with monthly inflation falling to levels below 2.5% in the coming months, and annual inflation at 40% in 2019. On the other hand, the monetary policy interest rate curve (Leliq) moved downwards, and so did the exchange rate´s curve. However, it is likely both will suffer corrections in next month´s report, to include the effect of recent events and the result of primary elections.