Monetary Policy Report (IPOM)

Monetary Policy Report (IPOM) The Central Bank published the report that analyzes the national and international economic situation, corresponding to April 2023.

Summary

The economy grew at an average rate of 5.2% per year in 2022 and recovered 2017 levels, exceeding market analysts’ expectations at the beginning of that year. As of September, the vast majority of productive sectors lost momentum and in the last quarter of 2022 GDP registered a 1.5% quarter-on-quarter seasonally adjusted (s.e.), which in year-on-year terms (y.o.y.) meant a growth of 1.9%.

After a period of deceleration in which monthly inflation went from 7.4% in July to 5.0% on average in the last two months of 2022, the inflation rate increased in the first two months of the year, averaging 6.3% per month (+0.8 p.p. compared to IV-22). Core inflation excluding Meat and derivatives, which could be considered a more structural measure of core inflation, averaged 5.8% in the first two months, registering a more moderate acceleration compared to the fourth quarter of 2022 (5.6%).

The BCRA kept interest rates in positive territory in real terms, which guarantees the protection of savings in pesos and contributes to keeping exchange rate and inflationary expectations anchored. The BCRA raised the interest rate with which it remunerates its shorter-term instruments, passive passes to entities and Mutual Funds, increased by 300 basis points the rate at which 28-day Liquidity Bills (LELIQs) are remunerated (to 113.3% effective annually (e.a.)) and adjusted the minimum rates at which private sector fixed-term deposits are remunerated. The BCRA will continue to monitor the evolution of the general price level, the dynamics of the foreign exchange market and monetary aggregates in order to calibrate its interest rate and liquidity management policy.

The BCRA’s international reserves stood at US$39,060 million as of March 31, showing a fall of US$5,538 million compared to December. This result is mainly explained by the payments of public securities of the National Treasury for about US$1,600 million, and by the net sales of the BCRA in the foreign exchange market for about US$3,000 million. It should be noted that behind the latter are the lower net revenues of the “Oilseeds and Cereals” sector during the first quarter of the year (which were 74% lower than the net revenues of the first three months of 2022) as a result of the impact of the severe drought and early frosts on the production and exports of agricultural products and their derivatives (wheat, corn and soybean pellets), the partial cancellation of the commercial debt that the sector had at the end of last year within the framework of the “Export Increase Program”, and the change in the seasonality of energy import payments to take advantage of the current prices in the international market and ensure the supply of gas for the winter.

The agreement at the technical level between the IMF and the Argentine authorities on the fourth review of the Extended Facilities Program, and its recent approval by the executive board of the multilateral credit organization, consolidates the monetary policy framework that the BCRA has been implementing since the end of the pandemic. This time the most challenging economic context in which economic policies must be developed is recognized and the goals remain unchanged with the exception of the reserves target for 2023, which is made more flexible in order to account for the impact of the drought on primary exports.

In the coming months, the BCRA will continue to calibrate its policies with the aim of lowering inflation. To this end: it will continue to adjust the monetary policy rate to the extent that financial and exchange conditions and price dynamics require it, it will seek to preserve financial stability by using its capacity to intervene through open market operations; it will continue to adapt the rate of depreciation of the domestic currency with the aim of preserving levels of external competitiveness; it will prudently manage exchange regulations in order to adapt them to the needs of the situation; maintain prudent management of monetary aggregates; and it will sterilize any surplus liquidity with its monetary regulation instruments, in order to preserve monetary equilibrium.