A new private report has concluded that President Alberto Fernández’s government has printed monetary bills equivalent to 18 percent of Gross Domestic Product (GDP) since taking office in December 2019.
The analysis, which attempts to get to grips with monetary policy related to Argentina’s persistent inflation problem, was conducted by finance brokers GMA Capital.
Consumer prices are accelerating at their highest pace in more than three decades. Inflation surpassed 12 percent in August and totals more than 124 percent over the last 12 months.
"Since the start of 2020 over 18 percent of GDP has already been printed to finance the Treasury directly or indirectly," GMA Capital said in its report. In their consideration, "this is the main reason why prices keep heating up with no apparent end in sight."
The firm estimates that "with the money printed to repurchase debt (already reaching a cumulative 3.6 trillion pesos so far this year), assistance for the Treasury already totals three points of GDP" in 2023.
In that sense it says: "The probability is that the injection of pesos measured as a percentage of GDP will probably end up superior to last year."
The report places the Central Bank’s decision not to increase interest rates in its electoral context.
"Relating this to the Central Bank’s indolence when it comes to safeguarding the value of the peso, what is true is that interest rates lost force as an anchor a while ago but they do collaborate towards slowing down the MEP and the CCL [medio electrónico de pagos and contado con liquidación parallel but legal exchange rates]," points out the consultancy firm’s study.
The report, led by chief economist Nery Persichini, argues that this measure should be read in "electioneering terms" since "negative real interest rates stimulate consumption but at the cost of assuming nominal risks which are far from minor."
"The quest for coverage in hard currency will probably accelerate in the run-up to the elections with peso interest rates not being competitive perhaps even bringing this ahead," warns the study.
The report adds it would be "rash to throw the dice and stimulate aggregate demand in the framework of a falling demand for pesos (with accelerated inflation) and a treble-digit gap between official and parallel exchange rates, even within a heavily repressive financial regime."