The non-approval of the Omnibus Law has created a macroeconomic challenge of large magnitude. Although it is currently under control, it will become a significant issue in the near future. The focus now turns to exchange rate policy as the Central Bank is faced with the difficult decision of how to proceed. Each available alternative comes with its own set of costs and challenges, making the decision a complex one.
When discussing exchange rates, it is crucial to consider the real exchange rate, which adjusts for Argentine inflation and that of the main trading partners. With an expected inflation projection for February of around 15-17%, it is clear that achieving a 2% monthly depreciation will be difficult with higher inflation anticipated in the coming months.
The argument that the economy will benefit from a lower exchange rate due to reforms aimed at increasing long-term productivity is understandable, but it is important to recognize that such productivity gains take time to materialize. While certain improvements have been made, there are still many unresolved issues within the economy.
One option that has been considered is continuing with the 2% monthly depreciation, which may help reduce inflation in the short term. However, this could also lead to a significant appreciation of the exchange rate. A strong peso could hinder the trade surplus that the Government needs to improve its negative situation with its international reserves.
Another alternative may involve increasing the speed of depreciation, which would come with its own set of challenges and consequences. The Government will have to carefully weigh these options and make a decision in the next few months, understanding that no alternative will be without its drawbacks.
In conclusion, while there are various alternatives available for addressing Argentina’s macroeconomic challenge related to exchange rates policy