Q2 Health is an Illusion

ARGENTINA - Report 11 Jun 2013 by Esteban Fernandez Medrano and Domingo Cavallo
Executive SummaryAppreciation of the parallel exchange rate, and a temporary fall in inflation, have moderated economic instability. But inflation and FX dynamics were mostly driven by unsustainable price controls, aggressive FX intervention in the blue-chip swap, and monetary contraction, bolstered by seasonal factors.The reduction of the blue-chip swap, rising interest rates and monetary contraction starting in the beginning of the year helped stabilize the parallel FX rate (now close to 8.5 pesos/dollar).We think the parallel exchange rate will closely track monetary expansion. The stagn...

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