Argentina Macroeconomic Perspectives

Argentina: In order to remove uncertainties, the new Economy Minister and Central Bank President reinforced maintenance of the current policies

• At press conferences, the new Economy Minister, Hernan Lacunza and the CB´s President, Guido Sandleris, evaluated the current scenario, highlighting the State´s and bank´s financial positions. Although there were no major announcements, the main goal was to show strength and determination to face volatility until October´s elections.

• Lacunza remarked fiscal achievements to date, including over-meeting targets. The primary fiscal surplus year to date is at 0.2% of GDP, while the Financial result reached -1.7%, improving 0.4pp compared to last year. Furthermore, he stated the fiscal stimulus announced last week will not affect the budget and is in line with policies agreed with the IMF.

• Economists from opposing parties were called, particularly due to Alberto Fernandez´s high chances of winning in October, for them to acknowledge that any definitions in terms of economic policies will affect the current scenario. Emphasizing the government has the double task of managing the economic scenario pre-PASO and minimizing vulnerability arising from two months of political uncertainty.

• Regarding the exchange rate, Lacunza considered it is above its equilibrium level, and reducing FX speculation is central as there are no structural reasons for the peso to continue depreciating.

• Similarly, Sandleris confirmed the maintenance of the current monetary policy frame, which is aimed at holding the exchange rate, which is already “competitive”, and reduce passthrough to prices. Following the press conferences, the CB sold USD 112 million reserves, and the exchange rate dropped 1.1%, closing within the new virtual band of ARS 57 and ARS 62.

• Although inflation decelerated to 2.2% in July, the recent peso weakening will have its effect on August´s prices. Annual inflation last month touched 54.4%, due to rising prices of Food and Regulated services, including Health and Transport.