Tuesday, October 24, 2017

Argentina raises rate 150 bps to speed up disinflation

      Argentina's central bank raised its monetary policy rate by 150 basis points for the second time this year,  saying the "insufficient speed of disinflation" necessitates further policy tightening.
      The Central Bank of Argentina (BCRA) has now raised its key rate by a total of 300 basis points to 27.75 percent, following a surprise rate hike in April, as it looks for "a more pronounced deceleration" in core inflation, which it repeatedly has said is the best way to measure inflation.
      Argentina's headline inflation rose by 1.9 percent in September to an annual rate of 23.8 percent while core inflation rose 1.6 percent to 22.3 percent.
      Although the central bank acknowledged that inflation has been trending downward this year, the decline is too slow as inflation remains sharply above the BCRA's target. In April 2017 the annual inflation rate was 27.4 percent and the core inflation rate was 25.8 percent.
      This year the central bank is aiming to push inflation down to between 12 and 17 percent. Next year the bank is targeting inflation of 10.0 percent, plus/minus 2 percentage points, and for 2019 BCRA is targeting inflation of 5.0 percent, plus/minus 1.5 percentage points.
      While recent data show lower inflation for November, the bank said the rise in fuel prices was higher than expected and this required it to induce lower price increase for other prices to compensate.
      Argentina's peso has been steady since August after falling from May through August.
      Today the peso was trading at 17.5 to the U.S. dollar, down 9.4 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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