The BCRA’s monetary policy interest rate fell by 50 basis points to 29.25%

July’s inflation rate according to the IPC GBA (Consumer Price Index of Greater Buenos Aires) was released last week.

This index enables the BCRA to assess the achievement of its inflation targets. In July, the inflation rate was 2%, exhibiting a significant drop against June (3.1%), and standing slightly below market expectations as published by this institution in the latest Market Expectations Survey. Similarly, core inflation went down from 3.0% in June to 1.9% in July.

There are other districts that are monitored by the BCRA to obtain a more comprehensive picture of the inflation dynamics. They further released their inflation rates last week. In line with inflation data gathered by the province of Córdoba, where inflation rate plunged from 2.7% in June to 1.7% in July, the monthly inflation rate in the Autonomous City of Buenos Aires dropped down from 3.2% in June to 2.2% in July, the core component plummeting from 3.6% to 2.3%. In turn, the inflation rate in the province of Mendoza was also released last week. It recorded an increase of 2.0% in June against 2.3% in July. It is worth noting that June’s inflation rate had already shrunk vis-à-vis 5.1% in May.

Moreover, the Wholesale Price Index and the Construction Costs Index for July were published today. Broadly, wholesale prices exhibited a slowdown. The Internal Wholesale Price Index (IPIM) fell from 2.9% in June to 2.7% in July (with a share of more than 1% in oil and gas); the Domestic Basic Wholesale Price Index (IPIB) dropped from 3.2% in June to 2.9% in July; and the Producer Basic Price Index (IPP) fell from 3.6% in June to 2.8% in July. In turn, the Construction Cost Index rose 1% in line with previous months.

July’s substantial drop of inflation confirms what has been anticipated by public and private indicators and estimates as mentioned in previous reports. Today, these sources suggest that the process of disinflation clearly continues in the first two weeks of August.

On the basis of this information, the BCRA decided to reduce its monetary policy interest rate by 50 basis points (down to 29.25%). Repo interest rates were lowered to the same extent. The BCRA will continue to proceed cautiously, seeking to cause last weeks’ disinflation to remain over time.

The BCRA will continue following its anti-inflationary bias to ensure that the disinflation process will lead to reach this year’s target of 1.5% monthly inflation rate or below in the last quarter.

August 16th, 2016

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