Decisions Taken by the Monetary Policy Council (COPOM)

October 30, 2019. The Monetary Policy Council (COPOM) of the BCRA has decided to adjust the floor of the interest rate on liquidity bills (LELIQs) and established the monetary base target for November.

In the face of a significant increase in the demand for US dollars on the days just before the presidential elections, the BCRA's Board exerted tighter foreign exchange controls by reducing to USD200 the maximum amount that individuals can purchase for saving on a monthly basis with no previous authorization by the BCRA1. This measure seeks to safeguard international reserves and give the new government more leeway to implement their economic policy.

Tougher foreign exchange controls are likely to increase the demand for assets in pesos. However, in the current scenario of high uncertainty, it is bitterly critical to ensure positive real returns for depositors. Accordingly, the COPOM reduced the floor of the interest rate on LELIQs to 63% for November. This implies a 5 p.p. fall against October, which is in line with market forecasts about a slowdown in the inflation rate.

In addition, the BCRA's Board established that, as from November, financial institutions may allocate LELIQ bills to comply with their minimum reserve requirements only in terms of time deposits.2. This change triggers a rise of ARS154 billion in the demand for monetary base, which is considered when setting the monetary base target for November so as to avoid excessive contraction.

This way, and in line with BCRA’s forecast of money demand, the COPOM establishes a 2.5% growth in the monetary base target for November against October, adjusted by the change in the scheme of minimum reserve requirements mentioned above.

To date, October’s average monetary base target is estimated to be about ARS1,391 billion, and to rise to ARS1,545 billion as adjusted by the new scheme of minimum reserve requirements. Thus, the resulting monetary base target for November is estimated to be worth ARS1,584 billion, net of foreign exchange transactions.

The COPOM holds that these measures will allow to resume the disinflation process that was interrupted in August and September.

The measures described here have been approved unanimously by the 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.

1. Communication “A” 6815 October 28, 2019.

2. Communication “A” 6817 October 28, 2019.


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