Saturday , July 31 2021

Does REM serve to make decisions?

The Central Bank rely on these data to remove the 60% annual floor rate for the reference rate. The latest REM, a study that every month produces BCRA with numbers that bring together students and participants, showed a second consecutive fall in inflation expectations.

The problem is that this input used by BCRA "to make decisions about monetary and economic policy" does not always coincide with projections. A reason to consider whether it is appropriate to base decisions on macro or business policies on what they say.

For example, in January 2018, REM predicted that inflation this year will be 18.6%. That the BCRA reference rate would be 21.75% per annum. And that the dollar will quote at 21.90 pesos. These are figures that were created at the end of the year, including the 28-D, when the Finance Ministry, BCRA and the Chief of General Staff changed the target of inflation from 10/12 to 15% per year.

That change can be considered as facilitating to justify deviations. But they stayed in February REM. And it is not necessary to contrast the data with what happened in reality. Inflation in the last 12 months amounted to 48.5%. The rate is 59%, and the wholesale dollar is over 38 dollars.

If in a private company they used these estimates for the construction of the budget from 2018, the responsible persons for each area will still explain. Deviations from the budget approved by Congress are equally difficult. The Ministry of Finance has made public accounts with an estimate that inflation will amount to 15.7%; that the dollar will be 19.30 pesos and that the economy will grow by 3 percent.

Some questionable who believe that the respondents will access the Central Data more or less satisfied. And that, with their private clients, will deal with other more real numbers. To be fair, who could predict what will happen this year, from April? The July REM showed adjustment of the forecasts: 31.8 percent for inflation, a rate of 35 percent and a dollar of 30 dollars by the end of the year. The same fell.

They are defended by consultants. There are 29 private studies, 7 private banks, 14 foreigners, two publications, several brokers and some universities. All recognized and prestigious. The full list is available on the BCRA website

The economist who is the head of the macroeconomics study explains that "for REM we send the baseline scenario, which we think is most likely. With clients we add alternative scenarios, which give them less chance of occurrence."

"Companies urge us to force consistent stress scenarios, to test capital or the flow of funds in extreme situations," he added, didactically.

Another economist, who for years collects and processes data in Central, confirms. "It is assumed that the data are the same for REM and its clients. Generally, companies use REM as another input to collect their annual budgets. They make a mix with the script transmitted by their chief consultant, REM and others by subjective numbers that they need to use to reach the figures included in the business plan of the year. "

Let's take the case of a private company, based on an optimistic scenario: for 2019, the number that estimates 30% inflation and 45% conversion rate is adjusted. The national budget for 2019 was put together with an average CPI of 34.8% and a dollar of $ 40.1. And the latest REM (with a poll at the end of November) showed a consensus of 28.6% for the general CPI for the next 12 months and an average dollar of $ 47.5.

The consultant, who also contributes to REM, projected a baseline scenario for a central level of 27% by the end of the year, a rate of 35% a year and a dollar of 51 pesos by the end of 2019. Client-clients have added a variant of stress, or non-smokers, with the dollar barely above 60 pesos and the consumer price index at 40%.

REM is just a guide. It may be pretentious to say that it is "public good … of great importance … to make decisions about consumption and investment …", as explained by BCRA's website.

It is nothing more than the consensus of subjective assessments that, although legitimate, may be wrong. What does not stop attracting attention is that, with the chance to predict the future in Argentina, economists from more than 50 local and foreign banks and consultants coincide with so little dispersion in the mistake (or, sometimes, in success).

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