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The Central Bank decided to maintain the reference rate at the center of the 7-day corridor, at 40% . The decision is what the market was expecting from price acceleration last month – although the monetary authority argues that there are already indications that the "price" is still there. inflation slows in July –
. Declaration of Monetary Policy brought New Ingredients : On the one hand, the Center confirmed that since Luis Caputo replaced Federico Sturzenegger the fight at the l & # Inflation ceased to be made exclusively through rates for also incorporate the monitoring of monetary aggregates . According to the statement, decisions to increase bank reserve requirements were announced.
In addition, the entity announced that the monetary policy decision will begin to be taken once a month which starting in the month of August. will be by vote members of the respective commission and that, as happens in other central banks, will be published how each of them votes .
Rate Arguments
"The BCRA will maintain the current contractionary bias of monetary policy until the trajectory of inflation, as well as expected inflation, is reached. Align on the target of December 2019 "said the entity.
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It is a debt of 19 months. It will have a denomination in dollars, but pay in pesos and can subscribe in one of the two currencies. At maturity, he will pay the highest amount between a rate of 4.5% in dollars or the peso rate resulting from the offer.
The station justified its decision to keep the rate at 40% on a number of considerations:
The acceleration of inflation in June which "reflects the effects direct and indirect from the recent instability of the exchange. "According to the entity," although market expectations have increased again in the last measure "of the REM," the latest data available show a deceleration of inflation from July ".
] The impact of drought and the acceleration of inflation in economic activity since April . Even though the entity expects that "the normalization of financial markets and the recovery of agricultural production" gradually contribute to a reactivation, it also recognizes that the activity "could take a few months of more to regain its former vigor.
The credit chain – adds the statement – continues to show balanced growth, although the effects of recent exchange rate instability have also been noted (…) the next few months, more moderate than the previous months, also supporting an accommodation to reduce overall demand. "
The text also highlights the increase in the collection of taxes in June and" the prospect of reaching the fiscal goal that would bring back the deficit from 3.8% of GDP last year to 2.7% this year, and 1.3% in 2019. "
The Monetary Policy Council recognizes that there is a risk inflation higher than expected in case of pbading the higher retail prices of the dollar higher than expected.But it also maintains that "the confirmation of the decreasing trajectory of public spending, added to the BCRA's commitment to no longer finance the Treasury and the efforts being made to reduce the excess liquidity of the system, should begin
Monetary Aggregators
Today, it is recalled that "the new authorities" of the Center had already been informed that & # 39; they had decided to & # 39; introduce monetary policy changes .
One of these developments is that the Caputo team understands that "in the transition to achieve single-digit inflation rates the inflation targeting system with the interest rate as the only instrument (…) should be supplemented by a closer monitoring of monetary aggregates . "
In this regard, the text emphasizes that private M2 has increased of 23.7% interanua l, "lower than the inflation of the last 12 months", although it also recognizes that "the monetary base presents a growth rate of 31.1% over one year".
"It must be taken into account that it is increased because of changes in the coefficients and periods of calculation of reserve requirements recently defined by the BCRA," he warns and points out that has therefore begun to "monitor a broad monetary base, which includes all BCRA commitments with the banks ] (net pbad, Leliq and Lebac held by the banks) and the Treasury 2020 admitted to integrate a Part of the reserve requirements. "
" This broad monetary base -specifies the text-shows growth of 27.6% year-on-year, compared to the peak of 46.9% achieved last May. "[19659002] He also insists on the intention of " gradually reducing the Lebac stock without increasing the currency". [19659005] Vote
The other fundamental change is in how the reference rate is decided . Until now, the Monetary Policy Committee had the character of an advisory body : it debated and the decision was made by the president of the entity, in general based on the consensus of the members of the committee.
Now it will be a decision-making body : the decision of monetary policy will be adopted by the vote of the members and these votes will be made public in the release (As Simultaneously, "the frequency of the monetary policy decision changes, pbading to monthly ", instead of the Federal Reserve of the United States, Federal.]
biweekly. The argument is that decisions can thus "reflect a consistent persistence with a precise perspective on inflation trends for the following months." The next monetary policy statement will be published on August 7 (until This afternoon was to be July 24.)
The monetary authority however noted that "in situations of high volatility such as Currently, it will maintain active intervention in the secondary market. Lebac area in order to reinforce the monetary policy signal, if any, between monetary policy decisions. "
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