Cambiamos? Economic gradualism does not generate credibility

The Argentine central bank last Friday raised interest rates by another 675 basis points to 40%. A few weeks ago, Argentina found widespread pressure on emerging markets due to the growing global aversion to risk and the largely unforeseen strengthening of the dollar. The central bank tried to resist by relying on its own international reserves to intervene massively in the currency markets. Unfortunately, this did not happen.

After quickly selling more than 10% of its reserves, as domestic and foreign investors took advantage of a golden opportunity to reduce Argentine exposure / emerging markets at relatively high prices, the central bank was forced to change strategy when began to increase the dollar and increase rates even more aggressively.

The longer it takes to restore the credibility of economic policies in the financial system and the debtors, the greater the risks for Macri’s economic reform program and the greater the probability of recession. Fortunately, on Friday the Ministry of Finance announced that it would reduce the 2018 target for the primary fiscal deficit to 2.7% from 3.2%.

Written by Aldo Leporati
Published in LinkedIn