The last week was more financially friendly for the Government. At least, that is how the economist and director of Perspectiv@s Económicas sees it, Luis Secco. “Some of Luis Caputo’s statements seem to have begun to convince”he said while assuring that it is necessary to update the exchange rate and public service rates.
Last week, Minister Luis Caputo met with the Clearing and Settlement Agents (ALyCs) and spoke about the implementation of the new fiscal pact, the exchange rate restriction, growth, inflation and motivated the market men.
“Some of Caputo’s statements seem to have begun to convince in a context where government measures have made it more difficult to accumulate foreign currency.. Although there was some confusion afterwards about whether the dollars are already there or are going to be obtained, the market reacted favorably.“, Secco said in an interview with the NA Agency.
What did Caputo say? He said that July will report the lowest inflation of the year, suggesting it will be below 4.2% recorded in May. In addition, he projected that inflation could start at 1% or 0% in September. He also confirmed that Dollar debt maturities until January 2026 are guaranteed by repos (bonds as collateral).
The debate over the exchange rate delay
Whether or not the exchange rate is delayed is one of the topics of debate lately. The government claims that it is not delayed, several economists and market players say that it is. Dry “One cannot talk about exchange rate lag without knowing the equilibrium value of the exchange rate in Argentina. However, it is clear that the dollar has been cheap compared to December when this government took office. The exchange rate at that time, at today’s prices, would be close to 1,500.”
That’s how the market would see it, says Secco.It is difficult to convince the market and economists that there has not been an appreciation and that it must be corrected. The government’s fear of loosening the restrictions and that this would cause a currency correction that would impact prices acknowledges this problem,” he explained.
Inflation and tariffs
President Javier Milei has been repeating that his goal is to reach zero inflation by 2024. Secco is not so optimistic: “These are objectives that sound good and are commendable in the short term, but we must consider the costs. The general expectation is that at some point the value of the dollar will have to be corrected, as well as the prices of essential services such as fuel, electricity, gas, and water.“.
There would be a problem there. It is difficult to reconcile the goal of zero inflation with the end of subsidies on service rates.These delayed corrections may show quick results in terms of lower inflation, but they will eventually have to be carried out, which could raise inflation again.“, he pointed.
These objectives sought by the government are partly supported by the adjustment and recession in the economy, only offset by the agricultural sector. Secco warns of this scenario and predicts that the economic data will continue to be negative. “It is difficult to say whether the bottom has been reached or not when there is so much variability in the sector,” he said.
Source: Ambito
