Tuesday, July 23, 2019

Argentina freezes Leliq rate at 58% until July inflation

    Argentina's central bank fixed the rate of its benchmark Leliq notes at 58.0 percent until July inflation is announced on Aug. 15 to "guarantee the contractionary nature of the monetary policy."
     The Central Bank of the Argentine Republic (BCRA), which on July 1 lowered the minimum interest rate on Leliq notes to 58.0 percent from 62.50 percent that was set on April 1, added in a statement from July 22 that it may revise the Leliq minimum rate when July inflation numbers are known to reflect inflation, inflation expectations, internal and external and financial conditions, and other macroeconomic data.
     Argentina's inflation data are published by the National Institute of Statistics and Censuses (INDEC) and the national consumer price index inflation for July is scheduled for Aug. 15.
     This follows primaries in the run-up to general elections in October, when Prime Minister Mauricio Macri is up for election.
     In June Argentina's annual inflation rate declined for the first time this year to 55.8 percent from 57.3 percent in May while monthly inflation slowed for the third straight month to 2.7 percent.
     From October 20178 until April this year BCRA employed a monetary policy framework in which the interest rate on Leliq notes was set through auctions, and thus fluctuated daily, while it targeted the monetary base in order to push down inflation.
     The weighted average rate on Leliq notes, which the central bank uses as its monetary policy rate, rose as high as 74 percent on May 2 but since then it has declined and remained below 70 percent since June 6 and below 60 percent since July 5. On July 22 the rate was 58.78 percent.
     The decision to lower the minimum Leliq rate to 58 percent on July 1 was to ensure that its monetary policy did not relax during July, when demand normally rises from the collection of bonuses and expenses in connection with the winter holiday.
     Today BCRA's monetary policy committee COPOM said the goal for the monetary base during the July-August period was unchanged at $1.343 billion and it would be using a bi-monthly average to determine if the monetary base target was met to avoid any excessive contraction in July.




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