Argentina: Argentina's Central Bank continues its easing cycle in August
August 30, 2016
On 30 August, the Central Bank of the Argentine Republic (BCRA) cut the 35-day Lebac interest rate by 50 percentage points from 28.75% to 28.25%. As a result, the policy rate now stands at its lowest level since it was introduced for the first time in December of last year. This is the fifth consecutive time in one month that the Bank has cut the policy rate, reflecting confidence that inflationary pressures are slowly decreasing. The move aims to make the Central Bank’s short-term notes less attractive in order to inject more money into the economy.
In its brief press release, the Bank commented that estimates from both public and private sources suggest that inflation decreased in August. However, the Bank also acknowledged that its capacity to accelerate monetary easing is limited by the fact that inflation expectations for next year remain above the BCRA’s inflation target range. For the last quarter of this year, the Bank targets a monthly variation in consumer prices at or below 1.50%. Analysts at JPMorgan expect the Bank to maintain a cautious stance:
“We concur on the premise, and therefore, we believe the central bank will continue to maintain a cautious stance, keeping positive ex-ante real rates north of 4% in order to consolidate dis-inflation process. We expect inflation stickiness to mount when reaching levels around 20%, given both the institutional price setting framework (e.g., wage negotiations based on trailing inflation), as well as the fiscal imbalance that we believe will also be hefty next year […]. Thus, BCRA would need to resort to even higher ex-ante real rates in its quest to drive inflation to its targets (17-12% for 2017, and 12-8% for 2018).”
Author: Dirina Mançellari, Senior Economist