I am going to confess an unpopular opinion: I am getting worried about Argentina.
I am also going to confess to embarrassing naivety: I have been testing my hypothesis with the wrong bankers.
But first, my concerns about Argentina. The mess up in monetary policy at the end of last year and the beginning of this one saw a delicate communications challenge around the changes to the central bank’s targets trampled on by the clumsy and damaging decision to accompany this policy change with two 75 basis point cuts to interest rates.
The central bank was beginning to get some traction in its very difficult and long job of bringing inflation down in a country that is synonymous with the phrase ‘unanchored expectations’.
As night follows day, inflation – and expectations of future inflation – have turned reversed and are now rising.
At the very least, the authorities have wasted precious time in getting inflation down to levels where the private sector sees exchange rates and interest rates at stable levels – where investments make financial sense.
