We expect BCRA to keep the corridor of passive and active 7-day repo rates at 25.5% and 27% with a center at 26.25%.

Argentina

The central bank will decide on the monetary rate today. We expect the central bank to keep the corridor of passive and active 7-day repo rates at 25.5% and 27% with a center at 26.25%. The central bank already tightened the rate of the short-term sterilization bills (Lebacs) to 26.25% and put it inside the corridor (the Lebac rate was previously at the floor of the corridor). In our view, the central bank will use more actively the Lebacs to mop up liquidity and ensure a disinflation process. We still expect the central bank to cut interest rates in 2H17. However, the still high levels of inflation and the uncertainty related to the mid-term elections mean the easing process will likely be gradual.  In this context, there are upside risks to our 22% forecast for the policy rate by the end of this year.