The 4.9% year-on-year inflation in April in the United States was in line with what was expected by the market and showed a slight drop compared to the month of March. This shows that the US monetary policy is having an impact, albeit slowly, in deflating prices and opens the question of what will happen to the rate: if the Federal Reserve (Fed) is going to continue raising it or not , which is important for the future of Argentina’s financial dynamics, since, as it is the dominant economy in the world, what happens in the northern country is central to local assets and investments.
“It has dropped a little and that opens the door for a positive reaction for Argentina from the markets,” said the economist from Grupo Broda, Elena Alonso. And it is that, it could mark the beginning of a less aggressive monetary policy by the Fed. Alonso explained that “when the interest rate of the world banks increases, a recessive trend is generated in the world economy because the capital goes to the United States Treasury assets. And, on the other hand, in the case of Argentina, there is upward pressure on local rates to contain money flows, which is combined with the fact that, as a supplier of food to other countries, if it is generated a recession in the world, there may be less demand.
Jeremías Morlandi, director of Public Policies at the Center for Economic Studies Argentina XXI (CEEAXXI), indicated that the moderation of inflation in the United States “is a consequence of the continuation of the rise in interest rates by the Federal Reserve” and everything would indicate that “The hawkish path of the North American policy maker is going to slow down and the rise in interest rates is going to come to a halt, or, at least, that is what the North American market expects.”
However, Juan Alra, portfolio manager of Southern Trust, pointed out that “although we see a slight decrease in prices, there is also a resistance of prices to decrease more strongly”, for which he considered that the Fed should continue to pay attention to How’s the outlook? And, consequently, he suggested that two scenarios could occur: the first is that inflation in the US continues to decline, which is probably accompanied by a drop in rates; the second, that inflation does not continue its containment and the Fed intervenes again.
This second scenario “would affect Argentina as an emerging country in the ease of accessing credit,” said Alra, noting that this is a scenario similar to the one in which we were immersed up to now.
Meanwhile, a scenario like the first “would be positive for emerging countries (and, consequently, for Argentina), since more capital would be willing to invest in risky assets and could provide relief.” In turn, on the economic rather than financial side, it indicates that the end of the rate rise and the stabilization of inflation could be reflected in an expansion of the economy, which could be channeled through the demand for commodities and be favorable for the countries exporters, like ours.
Financial analyst Federico Izaguirre considered that “the data that was released this Wednesday discourages what investors are waiting for, that the Fed, finding a ‘peak’ or ceiling for this data, will appease this long cycle of increases in the reference rate.”
The big problem, as stated by the analysts consulted, is that the rise in the rate not only cools the United States economy with the aim of curbing the escalation of inflation, but also has consequences in emerging markets, therefore, It could be that the international context, far from becoming friendlier for Argentina in the coming months, becomes more complex.
But Morlandi opens a door in this sense by pointing out that it should not be ruled out that, “in the medium term, the reference interest rates for the dollar are lower than they are currently, which could provide a more favorable scenario.” than was expected a priori with a more contractive Fed”.