Itaú BBA - ARGENTINA – Monetary policy: CB looks comfortable with the 1° weeks of the new monetary framework

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ARGENTINA – Monetary policy: CB looks comfortable with the 1° weeks of the new monetary framework

October 22, 2018

The governor stated that the balance-sheet of the central bank is sound.

Governor of the central bank presented the monetary policy report and expressed confidence in the sustainability of the new monetary policy framework. According to Guido Sandleris, the central bank’s commitment to not finance the treasury is key to meet the target of zero expansion for the monetary base until mid-2019. In the presentation, Sandleris said the central bank will evaluate the convenience of intervening (purchasing dollars) if the exchange rate hits the lower band of the non-intervention zone. He affirmed that the starting value of the recent real exchange rate appreciation was weak, so the recent strengthening of the peso represents no concern. Finally, the governor stated that the balance-sheet of the central bank is sound. Sandleris estimated the short-term debt of the central bank (Leliqs, Lebacs and Repos) at 5% of GDP (down from a peak of 11.2% in April) and projects 7.8% of GDP by end-2019 (if the nominal interest rates remains unchanged at the current level).

Inflation will likely remain under pressure in October due to adjustments in regulated prices. The central bank expects disinflation in November and December but recognized that year-over-year figures will continue on the rise.  

We note that the central bank pledged to not allow the monetary policy rate to fall below 60% until there is more evidence of falling inflation. The yield of the 7-day peso instrument (Leliq) stands at 72% (34.4% in real terms using the expected core inflation for the next three months according to the latest central bank survey,  and 15.6% using the average core inflation in last quarter).
 

Juan Carlos Barboza
Diego Ciongo



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