Argentina’s Central Bank stays on hold in the last meeting of 2017

We expect the central bank to keep the policy rate unchanged at 28.75% until March, amid strong utility price hikes

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Argentina’s central bank kept its benchmark interest rate (7-day repo rate) on hold again, at 28.75%, at its second monetary policy meeting of December (and the last of the year). The decision was expected by both us and the market (Bloomberg). In the press release accompanying the monetary decision, the central bank cited the positive evolution of core prices over the last few months.

According to high frequency indicators tracked by the central bank, core inflation maintained a favorable path in December despite the recent adjustment in regulated prices. The central bank considers that the current monetary-policy stance is adequate to mitigating the impact of these adjustments and continue with the disinflation process. The monetary authority expects the consolidation of the positive core-inflation trend to facilitate the convergence toward the 10% (±2%) inflation target for 2018. We expect the central bank to keep the policy rate unchanged at 28.75% until March, amid strong utility price hikes. ** Full Story here.
Argentina’s trade deficit widened in November, due to strong imports and weak exports. The trade deficit reached USD 1.5 billion in November, marking a significant deterioration from the USD 124 million surplus registered in the same month of 2016. The 12-month rolling deficit consequently hit a record high of USD 7.6 billion, from 6.0 billion in October. At the margin, the three-month annualized deficit widened to USD 13.0 billion (seasonally adjusted), from USD 10.5 billion in October. Imports rose by 30.2% YoY, for a cumulative gain of 19.9% in the first eleven months of 2017. Conversely, exports declined by 4.9% YoY in November due to lower sales of agricultural products.

We expect a wider trade deficit this year, consistent with our revised estimate for the current account balance. We now expect the trade balance to hit a deficit USD 8.5 billion, compared with our previous forecast of USD 7.5 billion. We also recently adjusted our forecast for the current account deficit to 5.5% of GDP, from 4.5% in our previous scenario. The robust growth in internal demand (fueled by the availability of financing) and a stronger currency led to some loss of competitiveness and a rapid increase in imports. ** Full Story here.

Tomorrow, the INDEC will publish the EMAE (official monthly GDP proxy) for October. We expect activity to grow 5.2% year-over-year (consensus: 4.8%) after gaining 3.8% in September. We forecast 2.9% GDP growth this year and 3.5% in 2018.


The central government posted a BRL 1.3 billion surplus in November, much better than market expectations (BRL -7.3 billion) and our call (BRL -3.8 billion). The surprise came mostly from lower discretionary expenditures: the BRL 25 billion budget unfreezes announced since September still didn’t affect the current fiscal results. As an upshot, strong increase in the pace of these expenditures and a large primary deficit will likely take place in December. Overall, the 2017 primary result will be better than the target of a BRL 159 billion deficit (-2.5% of GDP). Compared to the government’s forecasts, better recurrent revenues, surprises in the REFIS/PRT and further lower-than-expected mandatory expenses will likely imply a primary deficit around BRL 150 billion (-2.3% of GDP). The focus, however, already lies on the 2018 fiscal adjustment: considering our current scenario of a 3.0% GDP growth, the fiscal need in terms of non-recurrent revenues or a budget cut is around BRL 10 billion. However, recent activity data has disappointed (e.g if GDP is set at 2.0% instead, the fiscal need rises to around BRL 25 billion) and government is having a hard time on the approval of up to BRL 31 billion in proposed measures in Congress.

According to the Central Bank’s Focus survey, year-end Selic expectations declined to 6.75% for 2018 (from 7.00%) and remained flat for 2019 (at 8.00%). IPCA inflation expectations declined to 2.78% and 3.96% for 2017 and 2018, respectively, and remained stable for 2019 (at 4.25%). GDP growth increased by 2bps for 2017, 4bps for 2018, and 14bps for 2019, at 0.98%, 2.68%, and 2.89%, respectively. Median exchange rate projections remained virtually stable at 3.30/USD for 2017 (from 3.29), at 3.32/USD for 2018 (from 3.30) and at 3.40/USD for 2019.

According to the Ministry of Labor, November’s Caged formal job creation will be published tomorrow at 10:00. We forecast net creation of 8k jobs, below the median of market expectations (21k). In seasonally adjusted terms, our projection is consistent with net creation of 36k jobs, improving the 3-month moving average to 27k from 15k.


The statistics institute (INEGI) will announce November’s trade balance tomorrow at 12:00 PM (SP time).We expect the trade deficit to narrow. In our view, the improvement of the non-energy balance, driven by firmer manufacturing exports (reflecting the impulse from stronger industrial production in the US), probably more than offset the deterioration of the energy balance. Moreover, the after-effects of the natural hazards, which continued pressuring the energy deficit in October (after peaking in September), probably dissipated further in November.

LatAm Macro Calendar

Fuente: ITAU

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