Tuesday, January 23, 2018

Argentina cuts rate 75 bps, policy still contractionary

       Argentina's central bank lowered its monetary policy rate for the second time in a row, saying it still considers the current contractionary bias of monetary policy to be "somewhat high" but it will be cautious in changing its policy to suit the path of disinflation.
       The Central Bank of Argentina (BCRA) cut its policy rate by another 75 basis points to 27.25 percent and has now cut the rate by 150 points this year following a similar-sized cut on Jan. 9.
        Argentina's headline inflation rate rose slightly to 24.8 percent in December from 22.4 percent in  November but this reflected a rise in regulated prices of gas and electricity. The government has been slashing subsidies on a wide range of services to reduce its fiscal deficit.
        And while inflation in 2017 fell by almost 12 percentage points from 2016, the BCRA said this deceleration was not as fast as it wanted, with 2017 inflation averaging 24.8 percent.
         Reiterating earlier comments, the central bank said the the deviation of inflation from its 2017 target of 12-17 percent was due to a premature relaxation of monetary policy between October 2016 and March 2017 - when the rate was cut by a total of 200 basis points - and a higher-than-expected increase in regulated prices.
        But the central bank then raised rates in April, October and November last year, with the result that inflation has been trending lower in recent months and is expected to continue to decline this year  as regulated prices are expected to rise by 21.8 percent this year, below a 38.7 percent rise in 2017.
        "The central bank will conduct its monetary policy to reach its intermediate target of 15% in 2018," the BCRA, referring to the new inflation target that was set by the government in December.
        In late December Mauricio Macri's government pushed back its aim to lower inflation to 5 percent by one year to 2010 and raised its 2018 target to 15 percent from a previous 8-12 percent. 
        For 2019 the inflation target is 10 percent.
        The International Monetary Fund has forecast 2018 inflation of 16.3 percent, 2019 inflation of 11.8 percent and 10.0 percent in 2020.
         After stabilizing in the second half of 2017, Argentina's peso has been falling since early December and was trading at 19.33 to the U.S. dollar today, down 3.6 percent this year and down 19.2 percent since the start of 2017.

        www.CentralBankNews.info


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