Argentina Macroeconomic Perspectives

Argentina: An unexpected result in primary elections changed the current outlook, resulting in a slump in prices and heavy peso depreciation

• President Macri was 15pp behind Alberto Fernandez and Cristina Kirchner´s formula, increasing chances elections end in October. This result negatively affected argentine assets, drove country risk above 1600bps and the exchange rate rose 20% in one day.
• The Central Bank raised rates by 13pp and sold USD 315 million reserves, it had not traded in the spot market since last September, aiming to cap the run on the peso. As a rise in the exchange rate has a direct effect on inflation, which had started to show signs of deceleration in the past months. Hence, the immediate challenge for the government is to minimize the effect of political uncertainty over inflation, the peso and the slight economic rebound seen until July.
• The transition until October will be characterized by high volatility, awaiting AF´s definitions regarding economic policies, in particular IMF agreement, debt, monetary policy and fiscal policy targets, something unlikely to happen until the victory is reassured.