By: Fiona Ortiz
10.07.2008Argentina's central bank and banking system are in good shape to provide financial and exchange rate stability despite a global crisis, Central Bank President Martin Redrado said on Tuesday.
The country's banking system has very high levels of liquidity and can act as a cushion against the global crisis, instead of spreading it, Redrado said at a business seminar organized by the U.S. Chamber of Commerce in Buenos Aires.
He cited Argentina's long-term policy of regulating foreign exchange, its fiscal and trade surplus, and historically high foreign reserves as key to weathering the turbulence.
'The (banking) sector is prepared to act as a cushion against the international financial crisis, instead of being a propagator which is what has happened historically,' Redrado said, in the most detailed comments by an Argentine economic official since the global crisis deepened in recent weeks.
Argentina suffered a profound economic crisis in 2001-2002, but has rebounded and is in its sixth year of strong growth.
In recent years the government and central bank have employed economic policies -- criticized by economists who favor free-market mechanisms. The questioned policies include the authorities' use of exchange rate intervention and price controls on goods and services.
Redrado said the current global situation showed the wisdom of the central bank's monetary policy and said Argentina would continue a foreign exchange policy distinct from the country's neighbors, such as economic powerhouse Brazil.
Argentina kept its currency weak against the dollar while other currencies in the region strengthened. Now, Redrado said, while neighboring currencies are depreciating, Argentina's central bank will keep the peso strong.
'Our central mission these days and my main concern is to defend the demand for pesos, not only acting in the demand for money but also guaranteeing that demand is sustained in time through different policies,' Redrado said.
On Monday the central bank pumped dollars into the local foreign exchange market, but the peso weakened by 2.1 percent in informal trade between foreign exchange houses, as measured by Reuters, suffering its biggest one-day loss since November 2003. The peso ended at 3.2375/3.2425 per dollar on Monday.
Redrado also said the central bank should maintain attractive interest rates on peso deposits to isolate savings from the global crisis.
On Monday the central bank raised interest rates on short-term loans to banks by 75 basis points in a bid to help banks retain deposits.
'The local market has an ample flow of available funds to finance public and private needs. This is clearly an advantageous situation, especially in times of restricted access to financing on international markets,' Redrado said.
'Argentina's monetary and financial system ... possess very high levels of liquidity, which means that the tools that the central bank has are more than enough for the volume of the present system,' Redrado said.
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