September 18, 2019. The Monetary Policy Council (COPOM) of the BCRA has decided to adjust the parameters of its monetary scheme to the recent developments in Argentine economy.
In view of the increased country risk, little chance to refinance Treasury Bills, and a significant peso depreciation, the Ministry of Economy and the BCRA have adopted measures to preserve Argentina's monetary and financial stability. These measures seek to help the economy to go through the present state of uncertainty in the best possible way.
The acceleration of inflation caused by the Argentine peso depreciation entails a reduction of real money supply, while the new foreign exchange regime allows to project a steady real demand for money. Original monetary base targets should be updated to prevent an excessive monetary contraction in a context of adjusted liquidity.
In line with the BCRA's projections about demand for money, the new targets expect a 2.5% monthly growth in the monetary base in September and October. The monetary base target for September is calculated on the basis of the July-August target, amounting to ARS1,377 billion. These targets will be adjusted based on the net foreign exchange transactions that the BCRA would carry out since the date of this release.
The monetary base targets announced are set in a context in which projections about demand for money might lose accuracy. Then, in order to ensure the contractionary bias of the monetary policy, the COPOM considers it necessary to increase the floor of the interest rate on liquidity bills (LELIQs) from 58% to 78% in September, that is, during the inflationary peak. As for October, the floor is set at 68% in line with the market projections regarding a slowdown of the inflation rate.
The COPOM holds that these measures would help to keep a positive real interest rate and resume the disinflation process since October.
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.