Time to Pay the Piper

ARGENTINA - Forecast 20 Feb 2014 by Joaquín Cottani

Executive Summary After a sharp devaluation of the peso in January (23% m/m and 60 % y/y) the Central Bank launched a series of measures allowing for temporary stabilization of the money and FX markets. First, the Bank reinforced the sterilization policy, by raising interest rates by more than 10 percentage points. Second, the monetary authorities changed regulations to limit banks’ net exposure in foreign assets, to up to 30% of banks’ net worth. The first measure strengthened the demand for pesos; the second created a temporary increase in the supply of dollars and foreign currency-denomi...

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