“We are taking all necessary measures to reduce inflation”
What aspects should you underscore in this monetary policy report, the first one in your administration?
Unfortunately, this reports has to account for the reasons that led to a new inflationary acceleration; however, the report also describes a progressive improvement in the price outlook for the coming months, reinforcing the BCRA’s pledge to lower the inflation rate and, more importantly, explaining the tools that are being used to achieve such a goal.
Considering the latest records, is it possible to believe in a sustained inflation reduction?
Yes, definitively. Particularly, because we are taking all necessary measures to that end. We put an end to the BCRA’s financing to the National Treasury, we have secured sound international financing aid and, in addition, the Treasury has pledged to make a significant fiscal effort. Furthermore, we will continue having a tight monetary policy for as long as it is necessary.
Is there anything new within the monetary policy framework that allows generating greater confidence in the BCRA to achieve its goal to reduce inflation?
We still apply the inflation targeting regime; however, we think it should be supplemented with monetary aggregates quantitative control measures in the current context. To that end, we increased the minimum reserve requirement two consecutive times whilst we determined that relevant short term interest rates should be in line with this new monetary contraction. We will keep monitoring monetary aggregates so that there is no potential source for a rise in inflation within the system; nevertheless, the interest rate and inflation targets will remain the main monetary policy parameters.
So, the monitoring of monetary aggregates does not imply leaving the inflation targeting regime aside?
Indeed. The inflation targeting framework is mainly based on the role of the interest rate as a tool to order inflation expectations. However, in situations with high inflation rates and financial volatility, expecting rates to have that role may be too much. Then, monitoring monetary aggregates becomes a tool that may provide additional anchoring for expectations under certain circumstances.
What is the role of the exchange rate within the monetary policy framework?
We strongly believe in a floating exchange rate because it is the system that best cushions external shocks.
Does that mean that the BCRA will not intervene in the forex market?
No, it means that the BCRA will discretionally take part in the forex market when it is not operating smoothly.
To conclude, do you believe that inflation will go down in the coming months?
Definitively. We know we have undergone difficult months but we are sure that the measures we are taking will pave the way for a sustained inflation reduction.
