Argentina Monetary Policy January 2018

Argentina

Argentina: Central Bank cuts policy rate in January

January 10, 2018

At its monetary policy meeting held on 9 January, the Central Bank of Argentina (Banco Central de la República Argentina, BCRA) slashed the 7-day repo reference rate by 75 basis points. The 7-day repo reference rate now stands at 28.00%, and the decision marked the first rate cut since November 2016.

The latest rate cut followed two rate hikes in October and November, and the Central Bank’s decision to modify the inflation target for 2018 and 2019 on 28 December. The inflation target for 2018 now stands at 15.0% (previous target: 12.0%–8.0%) and at 10.0% in 2019 (previous target: 6.5%–3.5%). The decision to adjust the inflation target follows the government’s inability to meet the 2017 inflation target and the adverse impact that the tight monetary policy was having on the domestic economy.

The Bank’s latest decision was in line with market expectations, after the Bank’s inflation targets for 2018 and 2019 were eased. The decision to lower the 7-day repo rate by just 75 basis points reflected the delicate balancing act between rekindling faster economic growth and keeping inflation at bay. A more pronounced cut of the 7-day repo reference rate would have put significant pressure in the Argentine peso and stoked inflation as a result.

The Bank is expected to loosen monetary conditions gradually in the upcoming months. The BCRA stated its commitment to lowering the main interest rate without causing major interruptions in the economy or negatively impacting inflation. The number of rate cuts and the magnitude of each cut remains uncertain and will depend on more recent economic data.

Participants in the LatinFocus Consensus Forecast see the 7-day repo repurchase rate ending 2018 at an average of 21.43%. Panelists see the 7-day repo repurchase rate easing further in 2019 and expect it to close the year at an average of 15.84%.


Author: Jean-Philippe Pourcelot, Economist

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Argentina Monetary Policy January 2018 0

Note: 35-day Lebac rate in %.
Source: Central Bank of the Argentine Republic (Banco Central de la República Argentina).


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