Tuesday, October 10, 2017

Argentina holds rate as '18 inflation expectations inch up

     Argentina's central bank kept its monetary policy rate at 26.25 percent, saying inflation expectations for 2018 rose slightly to 15.8 percent from 15.7 percent in the bank's latest survey of market expectations.
      The Central Bank of Argentina (BCRA), which has kept its rate steady since a surprise 150 basis point hike in April after inflation expectations rose, added inflation expectations for 2017 were steady at 22 percent while expected 12-month inflation eased to 16.9 percent.
     In its statement from Sept. 12, the central bank said its survey showed 2018 inflation expectations had risen to 15.7 percent from 15.5 percent.
      As in previous policy statements in recent months, the BCRA said it would continue to maintain a "clear anti-inflationary bias to ensure that the disinflation process continues towards its inflation target of 10% +/-2% by 2018."
      For this year the central bank aims to reduce inflation to between 12 and 17 percent and for 2019 it is targeting inflation of 5.0 percent, plus/minus 1.5 percentage points.
      Last week Federico Sturzenegger, central bank governor, was quoted as saying inflation was continuing to decelerate but expectations remain above the bank's target and this credibility gap needs to closed in coming months.
      Argentina's national consumer prices rose 1.4 percent in August from July for an 8-month rate of 15.4 percent and an annual rate of 22.8 percent, up from 21.4 percent in July. Core inflation also rose 1.4 percent in August for an annual rate of 22.2 percent, down from 22.4 percent in July.
      A national consumer price index was first published in July and is now used by the BCRA to gauge inflation in relation to its target.  Argentina's inflation rate rose to a 2017-high of 40.5 percent in April, with prices driven higher by the government's removal of energy and transport subsidies to reduce the federal deficit.
      For September the central bank said it did not expect core inflation to show a significant change in  the values seen since May, and while it will be slightly lower in the third quarter than in previous quarters, it remains above the levels sought by the monetary authority.
     Argentina's peso has depreciated slightly in the last few weeks after firming in August and September, reversing some of the sharp decline seen from May through August.
      Today the peso was trading at 17.4 to the U.S. dollar, down 8.9 percent this year.
      The country's president, Mauricio Marcri, let the peso float shortly after taking office in December 2015, removing many of the controls that previous governments had used to prop up the currency and protect foreign reserves.




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