Argentina: Central Bank maintains rate unchanged at record high of 40.00%
At its latest bimonthly meeting held on 22 May, the Central Bank of Argentina (Banco Central de la República Argentina, BCRA) decided to leave the 7-day repo reference rate unchanged at an all-time high of 40.00%. The decision was widely expected by market analysts, as the Bank tried to settle markets by restoring confidence following weeks of financial volatility and a sell-off of the currency in the past few weeks. The Argentine peso came under severe pressure due to growing expectations of faster-than-expected monetary policy normalization in the United States.
The latest rate decision also came against a backdrop of double-digit inflation. According to the National Statistics Institute (INDEC), national consumer prices rose 2.7% over the previous month in April (March: +2.3% month-on-month) on the back of cuts in government subsidies. National inflation ticked up from 25.4% in March to 25.5% in April. According to the Bank, the sharp depreciation of the Argentine peso observed in the first two weeks of May will contribute in fanning price pressures going forward and consequently warrant tight monetary conditions. The Bank saw the current monetary stance as appropriate to impede a further sell-off of the peso and prevent a further depreciation, which would translate into higher inflation.
The Central Bank reiterated its commitment to conducive monetary policy, with the objective of achieving the 15.0% inflation target by the end of the year. A timeframe, however, was not provided, and future rate decisions will depend on developments in financial markets. The BCRA also stressed its willingness to normalize monetary policy as financial turbulence and uncertainty dissipates.