Argentina’s monetary policy decision: no room to cut rates now

Argentina’s central bank kept the benchmark interest rate (7-day repo rate) unchanged, at 27.25%, for the third consecutive time at its first monetary policy meeting in March. The decision was in line with our call and the rest of the market (30 analysts surveyed by Bloomberg did not expect changes in the policy rate). The tone of the statement was once again cautious, signaling no willingness to cut interest rates in the short term. In the press release accompanying the decision, the central bank noted that the latest inflation expectation survey for 2018 showed a new increase, to 19.9% (from 19.4% in February; Itaú 20%). The median core inflation expectation for 2018 also rose to 17.1%, from 16.9% before.

The central bank defended its recent interventions in the exchange market, arguing that further weakening of the peso is not justified by either real shocks or the planned path for monetary policy. The monetary authority ratified the floating exchange-rate regime, adding that occasional interventions are complementary to monetary policy in cases of disruptive movements that may affect inflation dynamics and result in negative financial conditions. The central bank has sold a cumulative USD 522 million since March 5. Finally, the central bank stated that it will not ease monetary policy until it sees clear signs of disinflation, similar to the guidance provided in the previous decision. We expect the central bank to stay put at least in its next policy decisions in March and April, given the challenging inflation environment, amid wage negotiations. Furthermore, we note exchange rate intervention can’t substitute tight monetary policy to contain pressures on the peso, especially considering the wide current account deficit and low level of net reserves. ** Full Story here.

Day Ahead: INDEC (the official statistical agency) will publish the National CPI for February at 4:00 PM (SP Time). We forecast a 2.60% increase (consensus: 2.45%).


Core retail sales climbed 0.9% mom/sa in January, beating the median of market expectations (0.5%) and our estimate (0.4%). Compared to January 2017, core sales expanded 3.2%. The December reading was revised upward by 0.7pp. Broad retail sales declined 0.1% mom/sa, slightly below the median of market expectations (0.2%), but matching our call. Compared to January 2017, broad retail sales grew 6.5%. The December result was revised upward by 0.5pp. In our view, the Black Friday event was not yet fully incorporated into the seasonal adjustment and may distort monthly readings in November and December. Hence, quarterly changes provide a good indicator of the recent dynamics in retail sales. Using this metric, core sales picked up to 0.4% from 0.0%, and broad retail sales also accelerated, to 1.2% from 0.5%. Six out of ten broad retail components posted seasonally-adjusted increases in January, outlining a better picture than the 0.1% slide in the headline result. Coincident indicators out so far (vehicle sales, surveys with consumers and retail entrepreneurs, Serasa retail index) suggest that broad retail sales advanced 0.5% mom/sa in February. ** Full Story here.

Day Ahead: The Central Bank announced another FX swap rollover auction of up to 14,000 contracts.


Day Ahead: Activity indicators for the month of January will be published at 12:00 PM (SP Time). We expect industrial production to increase a mild 1.6% year over year (consensus: 1.90%), while retail sales to increase 1.5% in twelve months, with car sales still a likely a drag (consensus: 1.20%).

Fuente: ITAU

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