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Decisions taken by the BCRA Monetary Policy Council

Buenos Aires, December 5, 2018. The Monetary Policy Council (COPOM) of the BCRA decided to supply additional information on the development of the monetary scheme in the coming months. Thus, transparency is expected to provide more predictability about management of monetary aggregates and foreign exchange intervention.

The BCRA overperformed its Monetary Base (MB) target in October and November. The monthly averages of the MB amounted to ARS 19 and ARS 15 billion, respectively, standing below the ARS 1,271 billion target.

According to high frequency indicators, both inflation and inflation expectations have started to flag some slowdown. Average inflation expectations for the next 12 months, as measured by the Market Expectations Survey (REM), stood at 29% in November; going back in time it totaled 33.4% at end-August, 32.9% at end-September, and 32.1% at end-October. These rates account for a 4.4 percentage point slide in inflation expectations for a 12 month period. Furthermore, inflation expectations fell when calculated as an average for the period (2.9 percentage points).

As a result of this dramatic drop in inflation expectations for two consecutive months, and as already foreseen, the 60% interest rate floor is removed. This floor had been set on August 30 under the previous monetary scheme and subsequently ratified upon launching the new scheme on September 26. At that time, the BCRA deemed it fit to give priority to honor the commitment previously undertaken even though such floor may restrain the endogenous nature of the interest rate in a scheme of monetary aggregates.

The BCRA will continue acting cautiously in the coming months. In this regard, the COPOM foresees to overperform December’s target as well by, at least, $16 billion. This figure is in line with the overperformance recorded in the last two months.

Likewise, the COPOM developed the following foreign exchange intervention strategy to be applied whenever the foreign exchange rate is endogenously placed outside the non-intervention range:

  • - As announced, if the foreign exchange rate is below the non-intervention range, the BCRA will be able to increase the monetary base target by purchasing US dollars through auctions. In December, auctions will amount to, as a maximum, 50 million US dollars a day. The total amount to be auctioned in December may not exceed 2% of the target.
  • - As also announced, if the foreign exchange rate is above the non-intervention range, the BCRA will be able to shrink the monetary base target by selling US dollars through auctions. In order to maximize the impact on liquidity, the BCRA may auction up to 150 million US dollars daily, as established in the monetary scheme.

Finally, against a backdrop of a slide in inflation expectations, the COPOM set the limits of the foreign exchange non-intervention range that will be the basis for the BCRA actions in 2019 Q1. With the values as of December 31, 2018 (37,117 billion and 48,034 billion, respectively) in mind, the non-intervention range will be updated daily at a 2% monthly rate from January 1 to March 31, 2019.

All the measures described here have been adopted with the unanimous approval of all COPOM members. The COPOM is composed of Guido Sandleris, Governor; Gustavo Cañonero, Deputy Governor; Verónica Rappoport, Alternate Deputy Governor; Enrique Szewach, member of the Board appointed by the Board of this Central Bank; and Mauro Alessandro, Economic Research Deputy General Manager.

December 5, 2018

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