In mid-May, the Inter-American Council of Trade and Production (CICYP) held a meeting with President Javier Milei. During this meeting, Milei outlined specific guidelines for future economic policies. He stated that addressing the Central Bank’s liabilities and other commitments would lead to a halt in monetary emissions, resulting in a fiscal surplus. This, combined with a shift to a flexible exchange rate, could eliminate endogenous issuance.
Following these announcements, the reference interest rate was reduced from 50% to 40% annually, and short-term debt from the Central Bank was transferred to Treasury bills and bonds. This move led to a decompression of short-term debt in pesos, increasing Treasury debt valued in dollars.
The market responded with a significant increase in free dollars, a decline in bond and share prices for private companies, and a rise in the country risk rate. Despite interventions to stabilize the situation, concerns remained about inflation and the government’s increasing debt obligations in dollars. Financial analysts highlighted the need for the government to address debt maturities as international credit was not accessible. The strategy to transfer Central Bank debt to Treasury bonds aimed to boost banks’ loanable capacity, potentially encouraging lending to the private sector.
Financial stability was maintained due to factors such as a limited supply of pesos in circulation and a consistent flow of dollars from exporters into the free market. The Central Bank’s reserves remained steady despite efforts to stabilize the exchange rate and manage debt payments by purchasing dollars. The government’s approach to economic stability included maintaining a balance between inflation reduction, debt management, and incentives for savers. By addressing these key areas, they hoped to achieve long-term economic stability and growth.
