Argentina central bank: bullish on inflation, more work needed on FX reserves

Argentina's central bank is bullish that the country's monthly inflation rate will come down faster than analysts expect, a bank presentation showed, but sees more work to be done replenishing foreign currency reserve levels.

Argentina's central bank is bullish that the country's monthly inflation rate will come down faster than analysts expect, a bank presentation showed, but sees more work to be done replenishing foreign currency reserve levels. The South American country is battling to restore economic stability under new libertarian President Javier Milei, amid one of the worst crises in decades with annual inflation near 300%, foreign currency reserves depleted and poverty levels rising.

Milei has pushed a tough austerity package that has won over markets and investors, with sharp spending cuts and a focus on overturning a deep fiscal deficit after years of overspending by governments on the left and right. A central bank presentation, made by deputy governor Vladimir Werning in Washington and compiling an array of data, showed that the bank expects inflation to drop to 9% this month and 5.8% in May, down from a peak over 25% in December.

That would be below its own latest analyst poll of 10.8% and 9% for this month and next, indicating more confident assumptions on the outlook for prices, one of Argentina's main economic challenges with the world's highest annual inflation. A slowing trend in monthly inflation, after a December peak when Milei allowed a sharp devaluation of the peso currency, led the central bank to recently trim interest rates.

The presentation also laid out how the central bank had strongly built up reserves this year, though cautioned they remained some $4.2 billion in net negative territory when Bopreal bonds and Treasury Deposit liabilities were excluded. As of April 19, it said, reserves were $552 million net positive with those included, which the presentation clarified was the definition being used for reviews linked to its $44 billion program with the International Monetary Fund.

Regarding currency controls, which Milei has pledged to undo, the bank said the aim was to progressively unravel them, with the end goal of "flexible FX policy, no exchange controls and operational on-shore currency competition."

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