BCRA rocks official bonanza nap

BCRA head Martín Redrado

The head Argentine Central Bank (BCRA, in its Spanish acronym), Martín Redrado, admitted yesterday, before an audience packed with investors in London, that he was "unduly worried" about Argentina's inflation. However, his remarks did not end there, since he also stated that "Argentina needs to deepen fiscal surplus."

The meeting was organized by the magazine "Euromoney" and, apart from BCRA head, officials from the economic team and private economists also took part. But, by far, the words echoing throughout and after the conference were those pronounced by Redrado.

After such meeting, several investors stated that his speech was part of the economic team's proposal to talk honestly. "During the last weeks, officials have made it clear that they don't want to hide problems any more and that they want to separate from irrational practice of Argentine Internal Trade Secretary Guillermo Moreno," an individual from the audience explained during an interview with this newspaper.

The official declined to mention which was the real level of price hike and he only made reference to stability of core inflation rate, a widely-used concept in developed markets. Of course that, in the case of Argentina, this denomination is of little use to understand such phenomenon.

Moreover, and in keeping with what he has been expressing during the last months, Redrado pointed out that the approach to fight inflation should be multiple: "It's necessary to work in a comprehensive manner, including fiscal, monetary, salary policies and measures related to competitiveness so as to sustain progress in the following years."

Of course that not all officials talking yesterday followed Redrado's trend. Finance Secretary, Sergio Chodos, answered, when being asked about figure manipulation, that "data disclosed by INDEC are believable."

Austerity

Redrado also warned about the need to carry out a policy entailing greater austerity: "Consolidated surplus reached to 5.3 per cent in 2004 and it has now plummeted two percentage points." "It's necessary to maintain and deepen such surplus, since we are still going through a typical period of transition after late crisis," he stressed.

Redrado's statements with respect to surplus join presidential couple's message, which has been given during meetings with investors in Argentina as well as in foreign countries. While confirming last week that 2008 fiscal surplus will hit 3.5 per cent, Argentine President Néstor Kirchner hinted that his wife and presidential candidate Cristina Fernández would "like it to settle at 4 per cent."

Miguel Angel Broda, one of the economists delivering a speech in London, signalled that "the first Economy Minister of Cristina Kirchner won't be the one facing Argentine problems, rather the second one." Thus, the expert hinted that the beginning of a potential administration of current presidential candidate may be quite stormy.

On the other hand, HSBC economists highlighted "proper intervention" of BCRA in financial crisis. First -they explained- the monetary authority went out to curb dollar hike so as not to boost greater inflationary pressures, and now it has pumped a handsome amount of pesos into market in order to put a cap on rate rise.

Further remarks made by the head of BCRA are provided below:

BCRA acted aggressively through future market so as to stabilize exchange rate.

In the same way reserve level acts as liquidity insurance for monetary policy, banks' liquidity is the first line of defence against unexpected events. Rules have let banks keep 40 per cent of cash out of their total assets, one the highest relations in the region.

Measures taken show how strong and effective our strategy is. We wanted to have the necessary "artillery" to maintain foreign exchange and monetary market.

Moreover, we have put it straight our commitment to price stability, to restrictions coming from the tools we have within reach during this period of transition.