Thursday, August 30, 2018

Argentina hikes rate 150 bps, pledges no cuts until Dec

      Argentina's central bank continued to tighten its monetary policy stance after the peso tumbled to new record lows, raising its benchmark rate for the fifth time this year and for the second time this month.
      The Central Bank of the Argentine Republic (BCRA) raised its monetary policy rate by another 150 basis points to a sky-high 60.0 percent and has now raised the rate by 31.25 percentage points since late April when it changed course and began raising rates to shore up the peso and curb soaring inflation.
       In its second unscheduled meeting this month, the bank's monetary policy committee said it was raising the rate today in response to the current exchange rate situation and the risk this would have a greater impact on inflation.
       The peso hit a record low of 41.3 to the dollar earlier today but then rose in response to the rate hike and was trading at 38.7 late today, down 52 percent this year.
       To guarantee that monetary conditions maintain their contractionary bias, the newly-established committee, known as Copom, pledged not the lower the policy rate until at least December.
      On Aug. 13, when the key rate was raised 500 basis points to 45.0 percent, Copom pledged not the cut the rate at least until October.
       To help reduce liquidity in the money markets, the central bank also raised its reserve requirement for all peso deposits by financial institutions for the fourth time this year. The reserve requirement for both sight and term deposits was raised 500 basis points and is now 34 percent.
      Argentina's inflation rate rose to 31.20 percent in July from 29.5 percent in June.
      In June the International Monetary Fund and Argentina agreed on a 3-year, $50 billion support package that included new inflation targets for BCRA and a new central bank law that will strengthen its operational and financial autonomy.
       The new targets are for inflation below 22 percent for the second quarter of 2019 and for inflation of 17 percent for 2019. For 2020 an inflation target of 13 percent has been set and for 2021 a target of 9 percent. By 2022 BCRA is targeting 5 percent inflation, its estimate of price stability.


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