As expected by the market, the Central Bank has decided to maintain its monetary policy ratedespite the fact that inflation data (retail and wholesale) reported by INDEC this week showed a price acceleration in the first month of the year. However, he warned that he will “continue to monitor” and “act prudently” as price increases unfold in the economy.
After its weekly board meeting, the organization chaired by Miguel Pesce released a monetary policy statement, corresponding to this month, in which it repeated the diagnosis it made days ago in the Economy: that the increase in inflation in the last month is due to “seasonal” factors and the increase in regulated prices.
“The monthly acceleration in the CPI growth rate was explained almost entirely by increases in the seasonal (mainly vegetables and tourism) and regulated (mainly transport, gas and communications) categories, while core inflation, which reflects the trend of the general level of prices, stands at a level similar to that of December (5.4%, with an increase of 0.1 percentage points)”.
The organization argued that the monetary policy rate, set since September last year at 75%, continues to hold “Positive Real Returns” (annual effective rate of 107.3%). This, according to the Centrale “guarantees the protection of savings in pesos and helps to keep exchange rate expectations anchored, favoring the disinflation process”.
The market assumed that the Central Bank would make this decision. At the end of January, faced with renewed tensions on the parallel dollar, the agency surprised the market with a rise in the repurchase agreement rate, the rate that banks obtain for shorter-term loans to the central bank.
Recent activity data, which show a cooling of the economy, make it very “expensive” for the agency to improve the attractiveness of bank placements in pesos through a new rate hike.
However, the evolution of inflation is key. City advisors expect this to stay close to 6% over the next few months and flirt with 100% again at the end of the year.
“Several forces explain why inflation remains at these levels. Other factors include seasonality (they will return in March with schools, supplies and textiles), rate adjustments, gross money issuance, growth in interest-bearing liabilities, the quasi-fiscal deficit, the less fluidity of currencies to supply imports leading domestic prices to mark the gap,” said Lucas Yatche, of Liebre Capital.
“To reverse this inflationary trend in a sustained way, greater fiscal policy is a necessary condition (to better adjust the decline in real spending and the primary deficit); where economic policy may not have such degrees of freedom in an election year,” he warned.
Source: Clarin
