Page 21 - July-August 2018 GSE Report Flip Book

MONETARY POLICY
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Argentina, Latin America’s third largest economy, is struggling to repay heavy government borrowings, as its peso drops 45% against the U.S. dollar and inflation soars 25.4% in 2018. On August 29, Argentina unexpectedly asked the IMF for an early release from a $50 billion loan.
The IMF said it would consider revising “the government’s economic plan with a focus on better insulating Argentina from recent shifts in global financial markets.” The plan would include “stronger monetary and fiscal policies and a deepening of efforts to support the most vulnerable in society.”
The following day, the Central Bank of Argentina hiked rates by 15 percentage points to 60% and promised not to lower them until December in an attempt to curb inflation and slow the peso’s dramatic fall. “It is now unclear if that will be enough to stabilize the government’s finances amid (a) persistent reserve drain,” wrote Deutsche Bank’s Jim Reid said in an August 30th research note. “Real rates are not tight enough to encourage capital inflows (so) the economy is likely to contract this year.”
A number of emerging markets, including Argentina, Brazil and Turkey, are feeling the impact of the Federal Reserve’s tighter monetary policy. (CNBC, Sam Meredith, 08/30/18)
On August 30, Geopolitical Futures’ staff wrote:
We’re still concerned about the structural integrity of emerging market currencies, many of which have fallen again after rebounding slightly in recent weeks. Turkey led the way again. The lira fell 2.3 percent on the dollar on Thursday [August 30]. Turkish President Recep Tayyip Erdogan eliminated
a 10 percent withholding tax on lira deposits of up to one year to stem the lira’s latest fall, and though this appears to have worked, leading to a 1.2 percent rebound on Friday, it is only a temporary solution. The lira is down 8.2 percent on the week overall. Argentina’s peso is also struggling, dropping 13 percent on the dollar on Thursday and necessitating Argentina’s fifth interest rate hike since April. The government announced that a new raft of measures would be revealed on Monday to stem the peso’s decline and curb inflation. The Chilean peso and Brazilian real were also down on the dollar on Thursday—1.8 percent and 1 percent, respectively. Brazil announced it would be intervening in the market with roughly $2 billion to roll over short-term debt maturing on Sept. 5. (Daily Memo, Geopolitcal Futures, 08/31/18)
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