Verisk Maplecroft Analyzes the Repercussions
Verisk Maplecroft has offered insights into Argentina’s latest move. They observe that the reordering of economic variables, along with the accumulated inflation and inflationary inertia that have been suppressed through price controls, will continue to affect consumers with triple-digit inflation until 2024. Nonetheless, by aligning the official FX rate closer to the black market and export-specific rates, the government is taking a significant step towards FX rate convergence.
Banctrust & Co predicts market response
Banctrust & Co shares its predictions on market reaction, expecting positive responses to the recent announcements. While they acknowledge that the lack of FX unification may hinder disinflation, they believe this will be addressed once there’s a seasonal inflow of dollars from soybean exports starting in May. This is likely to be the next step in the government’s plan.
J.P. Morgan outlines policy evolution and challenges
J.P. Morgan forecasts a required evolution of the policy template by the second quarter of 2024, as international reserves start to recover from soybean exports. They raise concerns about the fiscal adjustment’s heavy reliance on increased tax collection, the temporary nature of certain taxes, and the need for Congress approval. Additionally, they note that further correction of real expenditure and a unified exchange rate system without capital and financial account restrictions are necessary. While some policies lack clarity and quantitative details, the overvalued exchange rate should improve, allowing the central bank to accumulate critical international reserves. However, inflation is expected to rise as the weaker exchange rate affects consumer prices, requiring a clear exchange rate policy to prevent currency overvaluation.
International Monetary Fund Acknowledges Progress
The International Monetary Fund (IMF) commends Argentina’s bold actions to strengthen public finances while safeguarding vulnerable segments of society and foreign exchange stability. The IMF recognizes that these initial measures provide a solid foundation for further discussions to get the existing Fund-supported program back on track after recent setbacks.