Buenos Aires, September 11th, 2018. The Monetary Policy Council (COPOM) of the BCRA decided to keep the 7-day liquidity bills (LELIQs) interest rate at 60% per year, as foreseen last August 30. With a view to ensuring the contractionary bias of monetary conditions, the COPOM undertakes not to reduce this new monetary policy rate value at least until December.
The rationale behind this monetary policy decision may be summarized as follows:
Indicators have evidenced an inflation slowdown in July, as anticipated in the release of August 7. However, high-frequency indicators show a new acceleration for August and September. In August, price performance would mainly be influenced by the rise in regulated prices over the month. In September, inflation would be affected by the exchange rate pass-through to prices experienced at the end of August. Market expectations picked up force once again according to the latest measurement, showing the impact of the exchange rate volatility.
- As regards economic activity, last month’s information has spoiled the expectations stated in the release of August 7. Therefore, economic indicators in 2018 are expected to drop, following a similar trend in 2019.
- In the first seven months of the year, the primary fiscal deficit amounted to 0.9% of the GDP, decreasing by 0.7% of the GDP on a year-on-year basis. In addition, the Ministry of Economy announced tougher fiscal targets than those agreed with the IMF in June. Thus, the Ministry set a primary balance fiscal target for 2019 based on a deficit of 1.3% of GDP, and a primary surplus target of 1.0% of GDP for 2020 on the basis of 2019 fiscal target. This fiscal policy contributes to reducing inflation in the coming months.
- Regarding monetary aggregates, private M2 grew by 20.3% in y.o.y. terms according to data as of September 5, reaching a significantly lower level than the inflation registered in the last 12 months. Monetary base exhibits a growing rate of 41.3% y.o.y.; however, this is exacerbated by the changes introduced in minimum capital requirements. For this reason, the monetary authority also monitors a wide monetary base that encompasses all the BCRA's liabilities in pesos to financial institutions. This broad monetary base has increased by 34.6% in y.o.y. terms, showing a rise in the financial system’s deposits in pesos (52% y.o.y.) as a result of a drop in the stock of LEBAC bills.
In line with the policy decision adopted, the COPOM considers that the exchange rate instability of end August will give way to a higher pass-through and a delay in the inflation reduction process, as anticipated in the release of August 30. In addition, the COPOM believes that a cut in the real public spending coupled with the BCRA’s pledge to cease financing the
Treasury and its current efforts to reduce excessive liquidity in the system are likely to contribute towards inflation control.
The COPOM is committed to go on monitoring the performance of inflation in the coming months with a view to introducing corrective measures—if deemed necessary—to achieve its targets.
The next monetary policy release will be delivered on October 9.
Monitor de Precios
|% m.||% y.o.y.||% m.||% y.o.y.||% m.||% y.o.y.||% m.||% y.o.y.||% m.||% y.o.y.||% m.||% y.o.y.|
|Core National CPI||2.6||22.4||2.1||22.4||2.7||23.6||4.1||26.9||3.2||28.7||n/a||n/a|
|CPI for Greater Buenos Aires||2.5||25.6||2.6||25.6||1.9||26.4||3.9||29.5||2.8||30.9||n/a||n/a|
|Core CPI for Greater Buenos Aires||2.5||23.1||2.1||22.8||2.6||24.0||4.2||27.3||2.9||28.7||n/a||n/a|
|CPI for the City of Buenos Aires||2.1||25.4||3.0||26.5||2.3||27.2||3.7||29.8||2.7||31.0||n/a||n/a|
|Core CPI for the City of Buenos Aires||2.4||23.2||1.9||23.5||2.6||24.5||3.5||26.8||2.8||28.1||n/a||n/a|
|CPI for San Luis||2.8||25.2||2.5||25.3||2.5||26.4||4.1||30.2||3.6||32.9||n/a||n/a|
|CPI for Córdoba||1.7||24.8||3.1||25.8||2.1||26.7||3.2||29.5||3.5||31.2||n/a||n/a|
|Core CPI for Córdoba||2.2||20.8||2.4||21.5||2.2||22.1||3.7||25.1||3.5||27.1||n/a||n/a|
|Domestic Wholesale Price Index (IPIM)||1.9||27.5||1.8||29.2||7.5||37.7||6.5||44.1||4.7||47.1||n/a||n/a|
|Domestic Basic Wholesale Price Index (IPIB)||2.4||28.7||1.9||30.9||8.4||40.7||6.5||47.1||4.6||49.9||n/a||n/a|
|Producer Basic Price Index (IPP)||2.4||29.8||2.0||32.3||8.4||41.9||6.1||47.9||4.3||50.2||n/a||n/a|
|Construction Cost Index (ICC)||1.6||25.9||5.7||26.2||2.7||28.2||2.5||29.9||1.8||24.8||n/a||n/a|
|Construction Cost Index (ICC) - Materials||2.5||24.7||1.7||25.5||6.2||30.9||5.6||36.8||4.0||39.7||n/a||n/a|
|Construction Cost Index (ICC) - Labor||1.1||25.7||8.8||25.7||0.7||25.7||0.6||25.4||0.1||15.2||n/a||n/a|
|National CPI Market Expectations Survey (REM) - 2018||20.3||22.0||27.1||30.0||31.8||40.3|
|National Core CPI Market Expectations Survey (REM) - 2018||18.1||19.8||25.1||28.2||30.5||40.5|
|National CPI Market Expectations Survey (REM) - 2019||14.3||15.0||19.0||20.2||20.6||25.3|
|National Core CPI Market Expectations Survey (REM) - 2019||12.6||13.2||17.8||18.4||19.0||24.5|
|National CPI Market Expectations Survey (REM) - 12 months||17.8||18.2||22.2||24.2||23.7||31.5|
|National Core CPI Market Expectations Survey (REM) - 12 months||16.0||16.1||20.7||22.5||22.0||31.0|