The skyline in Argentina

Argentina Monetary Policy September 2019

Argentina: Central Bank relaxes money base target to give the economy some breathing space

On 18 September, the Central Bank of Argentina (BCRA) relaxed the money base targets for September and October, and also set temporary lower floors for the LELIQ rate. The moves reflect attempts to pump liquidity into the economy, while also preventing the peso from depreciating against the USD.

The BCRA abandoned the 0% growth rule for the money base, as part of the standby agreement agreed upon with the IMF and to which the Central Bank had previously stuck to. The Bank instead announced it would allow the money base to increase 2.5% in both September and October; nevertheless, the follow-up report subsequently showed that the money base rose by much less than 2.5% in September. The move follows the sharp depreciation of the peso triggered by the unexpectedly large victory of Macri’s rival, Peronist candidate Alberto Fernández, in primary elections held on 11 August. The selloff of the Argentinian currency led the Central Bank, in agreement with the government, to introduce FX controls, which have thus become the main monetary stabilization tool. Meanwhile, money base targeting has been put on the back-burner.

By relaxing the money base target, the Bank is trying to ensure there is sufficient liquidity so as to avoid depressing activity. That said, in order to protect the local currency and prevent an excessive depreciation of the peso, the Central Bank also set temporary lower floors for the LELIQ rate, at 78.0% for September and at 68.0% for October.

Looking ahead, the new measures should help cushion the economic and financial downturn at a moment when runaway inflation—further fueled by FX pass-through—is reducing the real value of pesos in circulation. On a broader scale, although measures to contain capital flight and the depletion of foreign reserves have so far proved quite effective, there is growing evidence that they are fueling a parallel market for the USD, which would further hit investment activity ahead.

Free sample report

Access essential information in the shortest time possible. FocusEconomics provide hundreds of consensus forecast reports from the most reputable economic research authorities in the world.
Close Left Media Arrows Left Media Circles Right Media Arrows Right Media Circles Arrow Quote Wave Address Email Telephone Man in front of screen with line chart Document with bar chart and magnifying glass Application window with bar chart Target with arrow Line Chart Stopwatch Globe with arrows Document with bar chart in front of screen Bar chart with magnifying glass and dollar sign Lightbulb Document with bookmark Laptop with download icon Calendar Icon Nav Menu Arrow Arrow Right Long Icon Arrow Right Icon Chevron Right Icon Chevron Left Icon Briefcase Icon Linkedin In Icon Full Linkedin Icon Filter Facebook Linkedin Twitter Pinterest