In a context of an acute debt crisis, a strong macroeconomic imbalance, and a pressing social environment, the country had to develop a COVID-19 response strategy using the instruments available in an emergency economy without access to the international credit market.
In the wake of an unprecedented pandemic with no clear end in sight, authorities have been forced to rethink policy priorities. BCRA’s financial assistance to the Treasury and credit initiatives became central to an emergency health and economic strategy that sought to prevent the crisis from leaving behind permanent consequences on an already heavily hit economy.
The main activity indicators show that the effects of the pandemic concentrated in the second quarter, while a gradual and heterogeneous recovery of activity is observed in the third quarter of the year.
The country succeeded in negotiating an unsustainable public debt. However, the foreign exchange market has given rise to expectations that need to be immediately addressed.
Therefore, the BCRA has updated the guidelines issued on January 27, 2020 to meet prevailing economic conditions.
In a strained foreign exchange market, the development of the monetary policy as a financial and foreign stabilization instrument comes to the fore. The BCRA will redouble its efforts to develop savings and investment instruments that allow Argentine citizens to earn positive returns not only in terms of the evolution of inflation, but also on the evolution of the exchange rate. In this regard, it will strive for gradually harmonizing monetary policy instruments’ benchmark rates, thus minimizing the impact on the cost of sterilization.
On the other hand, the need to respond to the pandemic has led to a significant liquidity increase. The BCRA closely monitors the evolution of monetary aggregates and acts accordingly using all available tools.
Taking into account the favorable outcome of the public debt normalization process, the BCRA will, in the exercise of its intervention capacity, conduct open market transactions in order to promote greater liquidity, depth and transparency in sovereign debt markets, with a view to embarking on a new phase in which the local capital market is key to the public sector financing strategy.
At present, the exchange rate is competitive. The multilateral real exchange rate is above its historical average, and the trade balance shows a significant surplus, which is confirmed by the current account positive result of the balance of payments.
The BCRA reaffirmed its commitment to follow the strategy of sustaining the stability of the real exchange rate, which is in line with the objective of building up international reserves. Within the framework of the managed floating strategy, the daily depreciation rate will gradually adapt to the needs of the current situation in order to avoid unwanted effects on competitiveness, domestic prices, assets and liabilities evolution as well as income distribution.
In a context marked by scarcity, foreign exchange market regulations seek to avoid any temporary imbalances that could affect the position of international reserves. In this sense, they are meant to be a necessary instrument for the coordination of individual decisions, while some progress has been made on the fiscal, external and monetary situation. Coordination will then be a priority during the transition to avoid negative impacts on productive activity.
The medium-term goal is to have macroprudential regulations compatible with the dynamization of capital flows oriented to the real economy.
To mitigate the economic impact of the pandemic, the BCRA has launched a set of credit instruments, as a result of which there was an unprecedented growth in financing channeled to SMEs. The activity levels that have started to show signs of recovery in some regions and sectors will enable to gradually reduce credit assistance and to strive for lending at negative real rates by adapting to the needs arising in this new phase.
October 1, 2020.