The measures announced today by the Minister of Economy, Hernán Lacunza, give a quick response to the political uncertainty that has prevented the renewal of the public debt in the short-term.
The decisions taken give priority to the use of international reserves to preserve monetary and financial stability even if that entails delaying payment to public debt large investors.
This decision may reduce strain on the exchange market, thus slowing down a potential demand of foreign currency and ensuring its availability to narrow down volatility.
The measures announced avoid making three mistakes like those that happened in the past when access to the credit market was suddenly interrupted.
The first common mistake is to try to gain time by giving artificial stimulus to the banking system to take on more public debt. Argentina has a liquid and sound banking system without currency mismatches and with low exposure to the public sector, which should not be affected by the problem in short-term public financing.
Another mistake is to use the BCRA’s international reserves recklessly for public debt payments. This would limit the BCRA’s tools to ensure monetary stability.
The last mistake lies in issuing pesos to face financing needs in domestic currency. Increasing the monetary base above the public’s demand leads to higher inflation and foreign exchange strain.
The measures announced by the Minister of Economy ensure that the BCRA has reserves to moderate foreign exchange rate volatility and preserve the financial system’s stability.
The BCRA will continue following a restrictive monetary policy and foreign exchange interventions as key tools to moderate nominal volatility.
The BCRA is committed to Argentine people. We will go on doing everything within our reach to restrain nominal volatility and ensure financial system stability in a sustainable way.
