Central Bank

The Government’s intention that the exchange rate of the dollar gradually increase is evidenced in the above-mentioned increase that experiment the U.S. currency in so little time, increase allowed by the Central Bank of the Argentina Republic (BCRA), that it has sufficient reserves to maintain a stable exchange rate of the dollar if desired. While at other times this dynamics of the dollar would have been avoided by the BCRA, the Monetary Authority feels comfortable with the evolution that the same has been observed. It is that for the BCRA that follow the dollar upside in the current economic context does not represent greater risks in inflationary terms. The effect transfer of the devaluation of the Argentine peso to domestic prices is minimal given depressed internal and external demand. But the expected devaluation of the Argentine peso can bring risks for the actions of the speculators who seek to take advantage of this possibility.

Moreover, a greater security that the Government aims to bring the dollar to a level close to the $4 will surely increase demand of individuals who see a good insurance in these times of uncertainty in the U.S. currency. It is worth remembering that individuals had significantly increased their demand for dollars in the most turbulent times for the Argentine economy during 2008 even despite the loss of wealth that this represented before an exchange rate which had behaved towards the baja and coexisted with a more than 30% inflation rate. Anyway, the risk of a currency run in the Argentina is bounded because the fire power of the BCRA that would act first casting hand on its reserves and, if necessary, would act limiting the demand for dollars through the amendment of the foreign exchange rules. Probably there are no wait that managed the exchange rate devaluation may involve in the current context great benefits, since they will be limited by the recessionary situation of the global economy and by the bad year for the agricultural sector, strongly affected by the drought. Even may think that they will be major risks that run with such measure than the potential benefits. Not be thinking that this managed nominal exchange rate devaluation will mean a substantial improvement in the real exchange rate.

Moreover, if we consider how likely occurrence, the Datum of expectation of inflation for the next 12 months obtained in the survey by Torcuato Di Tella University, indicating an average value expected from the 32.8% (and a median of 25%), we would find ourselves that with $ 1 to $4, the real exchange rate would be appreciated by more than 10%. Anyway, given the current economic context, the level of inflation more likely to Argentina in 2009 be around 15%. With this level of inflation, and whereas a rate to $4 at the end of year, the type of real change in Argentina would remain virtually unchanged. This floating administered just like what happened with the debt restructuring loans guaranteed, can give you a temporary relief to the Argentine economy. But the Argentine Government should soon begin to move forward with measures that address the tensions are facing the economy, from its root since they appear each time with greater intensity. Original author and source of the article.

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