The BCRA Reduced its Monetary Policy Interest Rate by 50 Basis Points to 28.75%

The province of San Luis' inflation rate and the results of some expectations surveys conducted by the BCRA were released last week.

July's inflation rate was 2.3% in San Luis. Although June's inflation rate was lower (1.5%), it was significantly influenced by a reversion of increases in regulated prices. Should that effect be disregarded, San Luis' inflation rate would have posted a slowdown between June and July.

The inflation rate calculated by the BCRA based on data from the Autonomous City of Buenos Aires, Córdoba and San Luis stood at 2.0% in July, following a downward trend compared to the 2.6% recorded in June. The structure of the index is displayed in the Monetary Policy Report of July (page 45).

Inflation expectations of the public surveyed by Universidad Torcuato Di Tella remained stable at 25% for twelve months. However, the Consensus Economics' surveys for the fourth quarter revealed that inflation expectations would be 1.6% per month, very close to the BCRA’s target (1.5% per month or lower).

The drop in July´s inflation confirmed indicators and estimates already released by public and private sources. The same sources suggest today that Argentina will continue to go through a disinflation process in the first three weeks of August, even without making allowances for the effect of the reversion in regulated price increases derived from the Supreme Court’s decision taken last week.

The volatility of the general level of price indexes caused by adjustments to regulated prices suggests that the evolution of their core component should be monitored. As highlighted in previous releases, this component recorded a slowdown between June and July as shown by the surveys made by the following districts: 3.0% to 1.9% according to the CPI for Greater Buenos Aires; 3.6% to 2.3% according to the CPI for the Autonomous City of Buenos Aires; and 2.6% to 2.3% according to the CPI for Córdoba.

Based on this information, the BCRA reduced the monetary policy rate and the repo rates by 50 basis points, the former standing at 28.75%. The BCRA will remain cautious to ensure that the disinflation process observed in recent weeks is extended over time.

The BCRA will continue the anti-inflationary bias to make sure that the disinflationary process will go on to achieve the objective for this year of 1.5% monthly inflation or lower in the last quarter.

August 23, 2016