Argentina Monetary Policy October 2017


Argentina: Central Bank hikes rate in October

October 24, 2017

At its monetary policy meeting held on 24 October, the Central Bank of the Argentine Republic (Banco Central de la República Argentina, BCRA) hiked its main interest rate by 150 basis points following data that confirmed stubbornly-high inflation. The 7-day Repo Reference Rate was increased to 27.75%. The hike marks the first increase since April and underscores the difficulties the government is facing to lower stubbornly-high inflation.

The Bank’s decision quickly followed the release of September’s disappointing inflation figure which saw increases in the Greater Buenos Aires capital area and the whole country. Even more troubling is that core consumer prices remain elevated suggesting that inflation will continue to remain elevated. September’s result confirms that reaching the inflation target for 2017 of 12.0%-17.0% is virtually impossible and poses great challenges to reach the 8.0%-12.0% inflation target for next year.

The Bank’s press statement was extremely clear and commented that monetary conditions are to remain tight in the foreseeable future. The Bank ruled out any rate cut until inflation moderates and converges toward the 8.0%-12.0% inflation target for next year. The Bank will also pay close attention to future developments of price levels in the country and act correspondingly.

Participants in the LatinFocus Consensus Forecast see the 7-day Repo Repurchase rate ending 2018 at an average of 20.5%. Panelists see the 7-day Repo Repurchase rate easing further in 2019 and expect it to close the year at an average of 15.8%.

Author: Jean-Philippe Pourcelot, Economist

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