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After the inflationary peak of 3.7% in June, at the Central Bank, they say they see a slightly more favorable outlook. The monetary authority said in its latest monetary policy report, known Thursday night, that the third quarter of the year will be a little better. "Reaches greater stability in the foreign exchange market of a decisive monetary policy reaction, the BCRA considers in its baseline scenario that inflation begins to slow in July and the third quarter shows a value close to 2% on average monthly This scenario envisages the continuation of the contractionary bias of monetary policy and greater exchange rate stability. "
Whatever the case may be, this downward trajectory which projects the BCRA does not mean, as already warned the governing body Luis Caputo in the other days, a relaxation of monetary policy.
"Although the Central Bank anticipates a moderate inflation scenario from the third quarter, the need to maintain the current contractionist bias of monetary policy is estimated until the trajectory of the 39, inflation and inflation forecast aligns with the target of 17% in December 2019.
On this point, Caputo reiterated his belief that we can believe in a sustained decline in inflation, "especially because we are taking all necessary measures to do so. We ended up with funding from the BCRA to the National Treasury, we got strong international financial support and, furthermore, the Treasury is committed to putting in place a major budget effort. In addition, monetary policy will remain contractive until it is necessary. "
In this context, Caputo reiterated that the inflation targeting regime will be strengthened by tighter control of aggregates "We have increased reserve requirements, established that the relevant short-term interest rates are consistent with this new monetary contraction and we will continue to monitor monetary aggregates so that it does not have a negative impact. There is no potential source of rising inflation in the system, but the interest rate Inflation targets will remain the main guide for monetary policy. "Although at the same time, he acknowledged that in times of high inflation and financial volatility," it is perhaps too demanding of rates that fulfill this role alone. "
Definitions of Caputo
The Central Bank distributed, besides Monetary Report, a series of definitions by Luis Caputo
Inflation Report : This is a report that unfortunately has to relate the reasons for it. a new inflationary acceleration, but which at the same time describes a gradual improvement in the price outlook for the coming months, reinforcing not only the commitment of the BCRA to reduce the rate of inflation, but above all, explaining the set of tools used to achieve this goal
the following months: We take all the necessary steps to bring it down.We ended up with funding from the BCRA to the National Treasury, we got fine support international strong and, in addition, the Treasury is committed to put in place a major budget effort. In addition, monetary policy will remain contractive until it is necessary
Monetary Policy: We maintain the inflation targeting regime, but in the context of currently, we believe that it is appropriate to strengthen it through quantitative control measures. As a result, we have introduced two successive increases in reserve requirements, at the same time as we have established that the relevant short-term interest rates are consistent with this new monetary contraction. We will continue to monitor monetary aggregates so that there is no potential source of rising inflation in the system, but interest rates and inflationary targets will continue to rise. 39, be the main guide to monetary policy
. : The inflation targeting framework is based primarily on the role of the interest rate as a discipline of inflationary expectations. But in situations where inflation rates and financial volatility are high, it may be too difficult to demand rates that, by themselves, fulfill this role. Then, the monitoring of monetary aggregates is a complement which in certain circumstances can offer an additional anchoring to expectations.
Exchange rate: We strongly believe in floating the exchange rate because it is the most suitable regime. It helps dampen external shocks. BCRA will intervene in the foreign exchange market when it considers that there are disturbances in its operation.
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