For the IMF, the measures “should help to meet inflationary expectations”

April 17, 2019 - By Robert Shackelford

Guido Sandleris, spokesman for the IMF, Gerry Rice, said that “the latest inflation data show that inflationary inertia remains a difficult challenge for the Argentine authorities” .

He added that “the current monetary policy framework is appropriately designed to meet this challenge. We welcome changes to the framework parameters that were announced today. Together with the recent decision not to extend the growth of the monetary base until November, they should help anchor inflationary expectations. “

Rice ended with an optimistic message: “We are confident that continued efforts in this direction will help lower inflation in the coming months.”

The Central Bank decided to apply a retouch to the exchange scheme: it will set the current level of the ceiling and floor of the exchange bands (or non-intervention zone) fixed, Sandleris announced. Today the roof of the band is at $ 51.45 and the floor at $ 39.75. It would stay at these levels until the end of the year at least.

So far, according to the Fund, the floor and ceiling of the band were indexed at a rate of 3% at the start of the monetary program (October 2018), until December 2018. In January, the monthly adjustment was 2 %, and since April that adjustment was reduced to 1.75% per month.

But, with the announcements of yesterday, they will leave the floor and the ceiling fixed. The possible modification of the exchange rate was a rumor that ran throughout the Assembly of the IMF and the World Bank that culminated this Sunday in Washington.

Both Finance Minister Nicolás Dujovne and Sandleris met separately with David Lipton, number two of the IMF, considered the highest technical authority of the body. Roberto Cardarelli, the head of the mission of the Fund who travels constantly to Buenos Aires to analyze the progress of the program, also participated in the meetings.

From the IMF and the environment of Sandleris were concerned to highlight then that they had not talked about possible changes in the scheme of the exchange rate. Even Dujovne, when asked about the issue, said “no” and that in his meeting with Lipton they had “followed the program, fiscal numbers. Routine. All routine. “

Minister Rogelio Frigerio, who also went to the Assembly, had said that “the President’s announcement (tomorrow will announce measures to reactivate consumption) does not include announcements regarding the Fund.” But, in the end, the conversations existed and several alternatives were considered.

The Fund was never a friend of the gangs – it is said that Lipton is a “Taliban” in this regard – since in theory they estimate that the currency should float freely and that the dollars that enter through the program should not be used to intervene in the market. But since the Argentine case is special and inflation has not dropped, certain exits have been sought, such as the sale of 60 million dollars a day that began yesterday.

But, given the March index – a surprise 4.7% -, they preferred to go further to anchor expectations. Argentine and Fund officials already knew last week that the index was bad and everyone understands that in an election year containing inflationary pressures is vital for the future of the program. That’s why they agreed to these new measures.

It will be necessary to see now if the announcements serve to anchor the inflationary expectations. It is estimated that they are necessary, but they may not be sufficient in a year in which the joint discussions are discussed and which could bring the indexes beyond what the Government and the Fund expect.

The man in charge of the Western Hemisphere of the IMF, Alejandro Werner had said last week in a report with Argentine correspondents that the gang scheme was “working well”, but that he did not rule out changes. “Discard modifications in scenarios that we are not currently contemplating but That could materialize would be irresponsible. “But he had stressed the value of” respecting the rules that work. “” If the rules are changed every quarter, then economic agents also do not know what will be the monetary and exchange rules that will govern in the next few months, “he said.

Roberto Cardarelli had also warned in that interview that lowering inflation would be a “gradual process”. “We never expect monetary policy to be a magic wand, but it is a necessary condition.

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