Day Ahead: The central bank will announce its biweekly monetary policy rate at 5:00 PM (SP Time). The central bank increased its policy rate (7-day repo) to 40% from 27.25% in three inter-meeting decisions since the last week of April. In the latest statement, the central bank repeated “it is ready to act again if necessary”. With a weaker currency and current higher interest rates, we and the consensus do not expect changes in the next meeting, but we note that Argentina remains vulnerable given its sizable external deficit (4.8% of GDP last year) and low reserves. So, the behavior of the exchange rate in coming days will remain a key determinant of the monetary policy.
Global Monetary Policy Monitor. In April, there were monetary policy decisions in 17 of the 33 countries we monitor, with a rate cut in Colombia and rate hikes in Argentina and Turkey. As a result, there were slightly more central banks tightening than central banks cutting interest rates in the month, in contrast with the previous month. Colombian central bank cut the interest rate by 25 bps. In Turkey, the central bank raised the late liquidity rate, used for providing temporary liquidity to banks, by 75 bps, but left the benchmark rate unchanged. Argentina’s central bank surprised markets by increasing the base rate by 300 bps in an inter-meeting decision at the end of April, followed by two other increases (already in May), by 300 and 675 bps, in the midst of pressures on the exchange rate. Also in the beginning of May, the Fed stayed on hold, as expected, continuing to signal “further gradual” hikes over the coming months. In Chile, the central bank also kept interest rates unchanged. Over the coming weeks, the BOE is set to stay on hold, while in Brazil the BCB will likely deliver a final cut of 25 bps. ** Full Story here.