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It is necessary to coordinate monetary policies and fiscal policies

It is necessary to coordinate monetary policies and fiscal policies

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In this regard, he argued that “the agreement with the IMF is going to be buoyant” the economic policies adopted by the Government, arguing that this is “important in order to prevent the inflation rate from skyrocketing”. Regarding the financial system, he said that “unlike other crises, the banks are going to become part of the solution”, because “the challenge is the low penetration of credit in the private sector, barely 11.3 %, but the high liquidity can play a dynamic role”.

For Park, the key is that the demand for Argentine pesos grows by citizens. “Low demand for pesos is the flip side of low credit penetration. Argentina has had a very volatile behavior in fiscal terms and external sector deficits, so the challenge is the accumulation of reserves and prudent behavior in terms of spending and fiscal administration”, since “it would allow controlling the inflationary acceleration that been seeing in the last decades”.

Two supply shocks

In the previous one, the chief economist of Santander, John Cerruti, expressed alertness regarding what he considers to be an unprecedented global situation. “We are facing the consequences of two global supply shocks, first with the pandemic and then the war. We know that supply shocks contract the activity of goods and services and promote stagflation”.

In this regard, he pointed out that the different regions of the world are in the presence of inflationary phenomena of a different nature: “In the United States we are seeing inflation of demand, this is the product of expansionary fiscal and monetary policies, while in Europe what there is is inflation supply, where it is consumed faster than it is produced because the supply shock is what generates inflationary pressures. Two out of every three items is inflation in food and energy, which is the most uncomfortable for central banks”. Regarding Latin America, he maintained that “it has its own components, for example, there is greater inflationary inertia and the central banks began to raise interest rates earlier and with more determination.”

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Regarding the latter, he said that “the cycle of tightening monetary policy and the strength of the dollar exert pressure on the external sector of emerging markets”, but that “so far, Latin America navigates well in these waters” because ” it has high levels of raw material prices, better macroeconomic fundamentals, lower current account imbalances, a good reserve cushion and less currency mismatching”. However, he warned that “the levels of fiscal deficit and public debt have increased (mainly due to the shock of the pandemic)”.

He also argued that there is a structural factor that drives inflation in some countries, for example, the energy transition, which promotes the demand for some goods such as gas. On the other hand, he added that the labor markets are experiencing low levels of unemployment, which deserves a detailed study. “Economies start this cycle of cooling and recession with a higher level of employment.”

What happens in Uruguay

Cerruti pointed out that the Uruguayan economy will grow about 5% this year and another 3% in 2023. “We believe that the numbers of the Uruguayan economy show factors that are common to other economies in the region, with growth that is sustained in 5% levels for this year. We could say that the crisis is being faced in a correct way”, he maintained.

In this sense, he mentioned that the inflationary issue continues to be a priority. “Uruguay is facing inflation that will end at 9% this year and that has a high component of transfer to prices of raw materials to the basic basket,” said the economist. He then argued that “the Central Bank of Uruguay (BCU) is doing a good job, raising the rate and we could be quite close to a pause in that rise that has been recorded.” In the first week of October, after the meeting of the Monetary Policy Committee (Copom), the BCU raised its rate by 50 basis points to 10.75%. In August, the BCU had increased its rate by another 50 basis points to 10.25%.

“We believe that inflation should go to a zone of 7% by 2023, although in general terms and in terms of activity it will depend on what happens in both Argentina and Brazil,” Cerruti said.

Source: Ambito

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