Central Bank alters monetary policy to stabilise peso
With the apparent approval of the International Monetary Fund (IMF), the Central Bank was able to face money markets at the start of last week without the previous restrictions on the exchange rate – the fourth change to monetary policy in six weeks.
The Central Bank said it will start to sell dollars to stabilise the peso depending on market volatility, a move seen as prompted by the national currency’s nine percent slumpt he previo usweekdue to electoral and other jitters.
Bank officials said on Monday they would sell up to US$250 million daily even when the exchange rate remains below the current intervention cap of 51.44 pesos per dollar. Previously, as from April 15, interventions authorised by the IMF were originally capped at US$60 million a day.
Until last week the Central Bank was authorised to increase its daily sales from US$150 to US$250 million only beyond the 51.44-peso cap. But now intervention is permitted below that level in “determined circumstances” which have yet to be fully defined and thus remain discretionary for now.
“With these measures the Central Bank now has significant discretion to intervene in the FX market whenever it judges appropriate and by whatever amount it sees fit,” Alberto Ramos, head of Latin America research at Goldman Sachs told Bloomberg this week. Some analysts expressed cautious support over the new measures as the bank applies a whatever-ittakes approach to cool annual inflation running at 55 percent. The bank has US$71.9 billion in foreign reserves which it can tap to stabilise the peso.
“It’s a bit uneasy the need to frequently adjust their strategy and increase firepower,” said Daphne Wlasek, macro strategist at XP Investments in New York to AFP. But, “any measure to ensure FX stability is positive.”
The IMF, which is managing a record US$56-billion credit line for Argentina, gave the new measures rapid approval even if the non-intervention zone now effectively scrapped had been part of last September’s deal.