Itaú BBA - Argentine Central Bank maintained interest rates at 40% and sold USD 695 million in the spot market

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Argentine Central Bank maintained interest rates at 40% and sold USD 695 million in the spot market

Junho 13, 2018

A rate hike is not completely off the table in the near term.

Talk of the Day

Argentina

The central bank kept the benchmark interest rate (7-day repo rate) unchanged at 40% at its first monetary policy meeting in June. The monetary authority reduced the corridor of repo rates to a lending rate at 43% (47% previously) and a borrowing rate at 37% (up from 33%), which it expects to narrow further when market instability moderates. The central bank sees an acceleration of consumer prices in June according to its high frequency indicators. While private sector already estimates a high inflation in May (up to 2.8% mom, up from 2.1% in April), the monetary authority expects a lower CPI reading (relative to market forecasts) due to a minor incidence of regulated prices in that month. The central bank noted that inflation expectations increased for 2018 in its latest survey (to 27.1% and 25.1% for the headline and core readings respectively). The central bank noted that the agreement with the IMF reaffirmed the inflation targeting scheme and floating exchange rate (keeping some flexibility to intervene in disruptive episodes). While there will be no inflation target for this year (15% originally), the central bank will pursue an inflation lower than 22% year over year by June 2019. In addition, new (and more realistic) goals were set for the next years. The monetary authority now targets 17% inflation in 2019 (instead of 10%) and 13% in 2020 (5% before) and 9% in 2021.

Given the still challenging inflationary outlook and Argentina’s vulnerabilities in a still testing environment for emerging markets, a rate hike is not completely off the table in the near term. Furthermore, the central bank resumed exchange rate interventions yesterday, selling USD 695 million. In our view, rate cuts will only come, once the peso stabilizes and inflation recedes.
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Brazil

The Central Bank implemented yesterday an additional FX swap auction of up to 30,000 contracts (USD 1.5 billion). The currency finished the day valued at BRL 3.71/USD.

Paper cardboard dispatches (ABPO) fell 19.5% yoy in May, heavily affected by the truckers’ stoppage between May 21-29. We estimate a 22.9% mom/sa decline. Our preliminary forecast for May industrial production declined to -5.3% yoy from -3.4% yoy, -9.5% mom/sa.

Day Ahead: April’s retail sales will be released at 9:00 AM (SP Time). We forecast strong gains in these indicators, affected by above-normal working days in the month: core retail sales: 0.7% mom (consensus: 0.6%) and broad sales to increase 1.7% (consensus: 1.5%). In year over year terms, we forecast core sales will fall -0.1% (consensus: -0.5%) and broad sales will rise 8.6% (consensus: 8.4%).

Chile

Day Ahead: The central bank will publish the decision of its two-day monetary policy meeting (June 12-13) at 7:00 PM (SP Time). We and the consensus expect the central bank to keep the policy rate at 2.5%.



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