Higher Rates, Higher Dollar, More FX Restrictions in a Very Fragile Economy

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Higher Rates, Higher Dollar, More FX Restrictions in a Very Fragile Economy

Third week
April 2023

The Central Bank raised the monetary policy rate by 300 basis points and raised the repos and the minimum fixed term rate. The move went almost unnoticed. Perhaps because it was relatively low and because the Central Bank continues to run inflation behind with a rate of 6.75% per month, below what appears to be the inflation floor today. For April, a month without large increases in regulated prices or seasonality, we see 7.1% as the most likely number. It also went unnoticed because although the rate is the anchor against inflation in most of the world's central banks, today the situation in Argentina is different. The economy does not need to be cooled. The channel through which the rate can hit is that of the FX rate, encouraging those who left to stay or return to pesos. It is clearly not happening, probably because 300 basis points are not enough in such an uncertain environment. The Central Bank fell short with this rise.