He indicated that “the interest rate mechanism, which operates on the savings and investment decisions of the private sector, does not work 100% due to the difficulties to invest in the real economy and the low financial depth of the market.”
GMA remarked that “the credit path does not move the ammeter with a private credit/GDP ratio of less than 7% (among the lowest in the world), but it does operate to facilitate or hinder the portfolio dollarization process.”
In this regard, the work considers that the government intends to take the system towards a “single rate market.”
Last week, the Central Bank decided to raise the interest rate for passive repos by 200 basis points, while it raised the corresponding to 85% from 75% annual nominal Common Funds.
The previous week the yield for term deposits had already improved to levels above annual inflation.
The report considered that the different channels that the economy would have to stop the rise in prices or the escape of the exchange rate, do not operate normally in Argentina due to the controls and the stocks.
“The exchange rate channel, referring to the official price and the adjustment of the demand and supply of tradables, is a creature extinct by stocks. Finally, the expectations channel, related to the credibility of the Central Bank and its ability to anchor the that we all think is going to happen with inflation, he is devastated,” GMA Capital said.
For this reason, he assured that “lowering inflation only with the rate is a distant dream”, although he stated that “trying to control the market price of the dollar (or sustain the value of the peso) by force of a higher financial cost could result in the short term even if the rest of the instruments receive blows”.
“Without a solid economic plan, or a change in expectations and confidence levels, the use of the rate only enhances the imbalances in the Central Bank’s balance sheet, an inheritance (along with that of maturities in pesos) on the which the next government should already start working”the report stated.
Source: Ambito
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