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Argentina Monetary Policy July 2018

Argentina: Central Bank keeps seven-day repo rate unchanged at record-high of 40.00% in July

At its latest meeting held on 10 July, the Central Bank of Argentina (Banco Central de la República Argentina, BCRA) decided to leave the seven-day repo reference rate unchanged at an all-time high of 40.00%. The decision was widely expected by market analysts, as the Bank attempts to restore confidence by supporting the currency following months of financial volatility and a currency sell-off throughout the second quarter.

Elevated price pressures and expectations of weak economic data following the currency rout that began in late April drove the decision. According to the National Statistics Institute (INDEC), national consumer prices rose from May’s 2.1% month-on-month increase to a survey-high of 3.7% in June. National inflation also increased sharply and reached 29.5% in June (May: 26.3% year-on-year), well above the Bank’s target of 15.0% to be reached by the end of 2018 and 17.0% in 2019. Real sector data in Q2 is expected to be disappointing due to the delayed impacts of a severe drought in the first quarter, while sharp monetary policy tightening by the Bank will stifle growth in the domestic economy. The industrial sector is, meanwhile, expected to be greatly impacted by high interest rates.

The BCRA took a wait-and-see-approach in the latest meeting and stated that they will only raise rates further if inflation edges higher from their current forecasts. The Bank considers that current measures to contain inflation are sufficient and will bear fruit in the next few months; raising rates any further is considered a measure of last resort to stem price pressures, due to the negative impact it would have on economic activity.

The next meeting will be held on 7 August.

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