Argentina Watch: Authorities combat bond speculation, release August inflation data

The Argentine central bank and securities commission CNV have announced currency control measures.

The move – the second of its kind since President Mauricio Macri’s crushing defeat in the August 11 primaries spooked investors and sparked economic turmoil – is targeted at combating speculation.

The central bank measure, announced on Wednesday, requires individuals who purchase up to US$10,000 in foreign currency to formally declare they will not, within five days, use the funds to purchase bonds on the secondary market.

CNV, meanwhile, on Thursday issued rules stating that the bond-buyer cannot sell them within five days of purchase.

Prior to the change, people were buying bonds and quickly selling them, benefiting from favorable exchange rates.

Argentina, targeting both individuals and businesses, has already has issued rules limiting US dollar purchases and foreign account transfers, to ease pressure on the peso and slow the depletion of foreign reserves.

Around US$10bn in foreign exchange deposits has poured out of the banking system since the primaries. Central bank reserves have also been falling, as these are used to cover foreign exchange deposits, as well as to help limit forex volatility.

In a report issued Wednesday, rating agency Moody’s said “prospects for continued reserve losses remain, increasing the likelihood that the authorities impose additional capital controls in the near future.”

Central bank international reserves stood at US$50.6bn on Monday, down from US$65.7bn on August 12, the first business day after the primaries.

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Monthly inflation in Argentina was 4.0% in August, bringing annual inflation to 54.5%.

The monthly increase is the biggest since March, when inflation printed at 4.7%. In April, authorities introduced price control measures to ease pressure on households. Further measures have since been implemented.

Local consulting firm Ecolatina said the pace of price increases has accelerated in parallel with the weakening of the peso seen following the August 11 primaries.

Inflation had been decelerating since March, amid belt-tightening measures, stronger farm production and optimism that market-friendly Macri would perform well in the primaries.

Thirty-nine analysts surveyed by the central bank over August 28-30 forecast that annual inflation would be running at 55.0% in December 2019 and at 38.0% in December 2020.

Monthly consumer price index changes in Argentina. CREDIT: BNamericas with BCRA data.