Monday, July 1, 2019

Argentina lowers Leliq floor in July to 58.0 percent

     Argentina's central bank lowered its minimum interest rate for benchmark Leliq notes to 58.0 percent for the month of July, when seasonal demand for working capital rises, as it met its objective for the monetary base for the 9th consecutive month in June.
     Since October 2018 the Central Bank of the Argentina Republic (BCRA) has used a monetary policy framework where the Leliq rate fluctuates daily and is set through auctions.
     Since April 1, when the central bank set a minimum rate of 62.50 percent, the weighted average adjudicated rate, or the monetary policy rate, for Leliq notes has fluctuated between 68.1 percent and 74.1 percent in May to 63.8 percent on June 24.
     BCRA's monetary policy committee COPOM said the average monetary base in June was $1.342 billion, slightly below the goal of $1.343 billion.
     To better manage liquidity conditions during July, when demand rises from the collection of bonuses and expenses in connection with the winter break, and strengthen the transmission of Leliq rates to savers, BCRA is also lowering the minimum rate of cash requirements for time deposits by 300 basis points, releasing about $45 billion.
     But to ensure monetary policy is not relaxed during this seasonal phenomenon, the central bank will retain the June goal for the monetary base during July. In coming months the target for base money would be then be lowered further to ensure continued disinflation.
     Argentina's inflation rate rose to 57.3 percent in May from 55.8 percent in April, with the central bank's poll last month showing analysts expect full-year inflation of just over 40 percent, down from 2018's almost 50 percent, and economic contraction of 1.5 percent.
     COPOM today also extended its limits for exchange rate intervention at 39.755 to 51.448 peso per U.S. dollar until Dec. 31, 2019.
     During March and April Argentina's peso was battered by volatility over nervousness of elections in October and the economy's weakness, but in on April 29 the central bank decided to intervene more actively, boosting the daily limit for sales to $250 million from $150 million and raising fears a return to intervention could put it on course to draw on its foreign reserves.
      Last year BCRA used up $16 billion on its reserves between March and September when the International Monetary Fund boosted its support program to $56 billion.
     After hitting a record low of 45.8 to the U.S. dollar in late April, the peso has rebounded and was trading at 42.4 to the dollar today,  down 11 percent this year.


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