Since December 10, 2023, there have been signs of a visible reduction in macroeconomic uncertainty, among which the following stand out:
THE DOMESTIC PAYMENTS SYSTEM RETURNED TO NORMAL
Falling trend in retail inflation. Since relative prices were adjusted in December 2023, a steep slowdown of inflation has been observed, despite the significant statistical carry-over of inflation in its monthly averages. Price surveys conducted on a more frequent fashion have been useful to see the month-on-month dynamics. Therefore, they will continue offering a complementary tool to diagnose the inflation path.
Favorable outlook for underlying inflation. On the one hand, the retail inflation path represents a noticeable decrease of the exchange rate pass-through in relation to previous experiences; and, on the other hand, inflation was lower than that projected in the Memorandum of Economic and Financial Policies agreed with the International Monetary Fund (IMF). In the coming months, the authorities of the BCRA will focus on the evolution of core inflation considering the announced adjustments to regulated public utility rates.
Moderation, in real terms, of money issuance and ensuing improvement in the BCRA’s balance sheet. Since December 10, the monetary base and the broad monetary base (including remunerated liabilities in pesos) have been reduced by 17% per month and by 14% per month in real terms, respectively. This monetary anchor has contributed to the slowdown of inflation thanks to the immediate resolution of two major accumulated macroeconomic imbalances:
– First, the removal of monetization due to fiscal deficit, which climbed to 5% of the gross domestic product (GDP) through direct and indirect sources in 2023. In fact, since December 10, the monetary effect of fiscal policy has been working in opposite direction and becoming virtuous, reducing the amount of pesos in circulation by about 2 trillion. In this way, the goal of zero accumulated net financing for 2024 agreed with the IMF in the Memorandum of Economic and Financial Policies has been overperformed.
– Second, the broad acceptance of the Bonds for the Reconstruction of a Free Argentina (BOPREAL), which strongly reduced the undesired holding of pesos and the potential demand of foreign currency in the short term as they served as a foreign exchange swap. The BOPREAL bonds placed to date for USD7.8 billion provide deferred access to foreign currency, on a predictable basis and at market value through the Free Foreign Exchange Market (Mercado Libre de Cambios, MLC). The importers’ debt account reached a historical high of USD58 billion by the end of 2023 due to the inconsistent and discretionary way the foreign exchange and foreign trade policy had been previously implemented. Thus, the outstanding demand of foreign currency could be managed successfully without compromising macroeconomic stability.
THE FOREIGN PAYMENTS SYSTEM RETURNED TO NORMAL
Sustained accumulation of international reserves. Since December 10, 2023, the BCRA has steadily purchased USD9.6 billion in the MLC, reversing the trend of 2023, in which net international reserves fell USD23.4 billion. Thus, purchases enabled to accumulate net international reserves for USD8.4 billion since then, going further on the target of USD6 billion set out in the Memorandum of Economic and Financial Policies signed with the IMF for the first quarter of 2024.
Stability of the gap between the official US dollar exchange rate and parallel exchange rates (CCL, MEP, “blue”), and downward revision to the price of dollar futures contracts over the official exchange rate. In a context of no official intervention, the gap of the importer exchange rate has sharply decreased both from its pre-December 2023 peak of about 200% and its post-December 2023 figure—34%. Nowadays, the gap between the parallel exchange rates and the official exchange rate for importers is at a minimum, below 10%, strongly reducing foreign exchange uncertainty and its impact on inflation expectations. Moreover, the dollar futures contracts (ROFEX) have systematically and sharply fallen, which flag increasing confidence in the consistency of the current macroeconomic policies. Favorable evolution of the program for accelerated access of MSMEs to the MLC. As of around Communication A 7952, 5,000 MSMEs included in the Registry of Commercial Debt from Imports Owed to Foreign Suppliers have accessed the MLC to purchase foreign currency and settle debts for imports prior to December 12, 2023.
BCRA’S ACTIONS
In response to the evolution of the economic context and the conditions of financial liquidity, the BCRA’s authorities have adopted the following measures:
Reduction of the monetary policy rate: As of March 12, the interest rate for passive passes is set at 80% TNA.
Liquidity management through repo transactions will return to normal: the access to repo facilities will be once again exclusively available to financial institutions regulated by the BCRA (see Communication A 7977).
Deregulation of minimum interest rates: As of March 12, the minimum fixed-term rate is eliminated (see Communication A7978).
