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Argentina Monetary Policy July 2019

Argentina: Central Bank sets a temporary floor for LELIQ rate in July

At its latest meeting held on 1 July, the Central Bank of Argentina (BCRA) set a temporary floor for the LELIQ rate during July, in order to continue its fight against inflation. At the same time, the BCRA stated it achieved the 0% monetary base growth target for the ninth consecutive month in June, and that it will maintain its current stance on monetary base until the end of the year.

As the BCRA expects a peak in demand for money in July, due to the southern hemisphere winter vacation, the Bank decided to cut the reserve requirements for fixed-term deposits by 3 percentage points. To ensure that this change does not translate into a relaxation of monetary conditions, the Bank introduced a floor for the LELIQ rate during July, set at 58.0%. The BCRA also announced it will reduce the base money target for August-October. This should help drain liquidity, limit potential depreciations in the peso and thus bring inflation down.

Starting 1 October, as stipulated in the standby agreement with the IMF, the Bank adopted a rigid monetary rule which sets a 0% monthly growth for the monetary base. As part of the agreement, the Central Bank also adopted an FX regime, which combines a free-floating range for the peso with the prevention of excessive ARS/USD fluctuations. Given that the Bank will continue to limit growth in the monetary base, inflation should subsequently moderate, while LELIQ interest rates should edge down.

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