ARGENTINA – Central Bank Raises the Monetary Policy Rate

The central bank did not clearly indicate in the latest statement whether or not the move is a one-off.

Argentina’s central bank raised the monetary policy rate by 150 bps, to 27.75%, at its October meeting.The decision was unexpected given that Central Bank President Federico Sturzenegger recently downplayed the September inflation reading (1.9% headline inflation and 1.6% core inflation), which showed an acceleration from August that brought YoY inflation to 23.8%.  Instead, Sturzenegger argued that the disinflation process remains on track, albeit not at the pace targeted by the monetary authority.

According to the press release announcing the decision, the monetary authority noted that the insufficient pace of disinflation and a higher-than-expected increase in fuel prices merits a tighter monetary stance.The central bank reiterated its commitment to bringing core inflation down to lower levels and putting the disinflation process on a path consistent with the 2018 target of 10% (±2%).

Core inflation is a source of concern. The central bank is clearly uncomfortable with the persistence of core inflation. In the statement, the monetary authority noted that core item prices increased 1.6% MoM on average in 3Q17, just slightly below the 1.7% posted in 1Q17 and 2Q17. The central bank stated that it will seek a faster deceleration pace.

Contrary to the previous hike in April (also 150 bps), the central bank did not clearly indicate in the latest statement whether or not the move is a one-off, although the magnitude suggests that additional hikes in the very short term are unlikely.

Juan Carlos Barboza
Diego Ciongo

Fuente: ITAU BBA

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