Economic slowdown, inflation and rates revolve in the center of the Argentine financial scene

The financial square of Argentina showed a notorious selectivity on Thursday immersed in the growing doubts about the future of the domestic economy, in an election year, and the banking crises external that clouds the panorama.

While annualized inflation exceeds 100% for the first time since 1991, the board of directors of the central bank (BCRA) analyzed the luck of the referential rate and the loss of reserves was accentuated with the days.

“The greatest current risk is the scenario of more inflation with recession, where the ‘shock’ of the (rural) drought impacts a fall of up to 2.5 points in GDP, with the loss of at least 16,000 million dollars in the export liquidation”, said private analyst Marcelo Rojas.

He added that with “In this scenario, there will inevitably be more restrictions on imports due to lack of dollars, with the aggravating circumstance that a (local) rise in rates helps to remove pesos from the pressure of the dollar, but cools the economy and makes public and private credit more expensive”.

Consultants based in Buenos Aires review the Argentine GDP for 2023 downwards: Eco Go -3.1%, Orlando Ferreres -2.3%, LCG -2.2% and Empiria -1.3%.

The euro and eurozone sovereign bond yields rose after the European Central Bank (ECB) hiked rates by 50 basis points, despite some investors having thought recent turmoil in financial markets might deter it.

The Buenos Aires stock market showed its leading benchmark S&P Merval with a gain of 3.54%, at 217,250.52 points at 12:40 local time (1540 GMT), against an adverse drag of 16.38% in the last five consecutive sessions at the close and what triggered opportunity purchases.

Argentina has once again put on the table the possibility of an increase in the benchmark interest rate as local inflation continues to hit consumers and fears of contagion from the banking crisis in the market, said a source familiar with the topic.

“The issue of a possible rate hike within the board of directors is very much discussed, just “they will decide on tables” this Thursday, said the bank informant on condition of anonymity.

“The board of directors is guided by core inflation and despite the fact that the jump in February was high (6.6%), extrapolating the meat item, a general level of less than 6% would have been had”added a market source.

This complex scenario made some operators lean towards the referential rates ‘Leliq’ remains at 75% per year, or that the BCRA increases it up to the nominal 80% zone.

Over-the-counter bonds remained balanced with lower business volume, in line with a stable JP.Morgan bank country risk at 2,394 basis points, the highest point since the end of last November.

The interbank peso fell 0.19%, to 202.92/202.95 per dollar through the regulation of the BCRA, an entity that has just sold some 87 million dollars on Wednesday, to post losses of about US$640 million in March and climbs to a red of about 1.7 billion in 2023.

The currency in the alternative segments lost strength to 399.3 units on the stock market “CLC”to 386.1 in the “MEP dollar” and up to 383 per dollar in the informal market, which positioned it very close to the record low of 386 units at the end of January.

Source: Reuters