After the inflationary peak of 3.7% in June, in the Central Bank they say they see a slightly more friendly horizon. The monetary authority said in its last monetary policy report, known on the night of this Thursday, that The third quarter of the year will be a little better. “Achieved greater stability in the foreign exchange market from a decisive monetary policy reaction, the BCRA considers in its baseline scenario that inflation begins to moderate in July and the third quarter shows a value close to 2% average monthly. This scenario contemplates maintaining the contractionary bias of monetary policy and greater exchange stability. ”
On that path, the July CPI would be the highest of the quarter, with a more pronounced decline expected in August and September. Thus, inflation for the three months is expected 6%, against the 8.5% accumulated between April and June.
Anyway, that downward path that projects the BCRA does not mean, as already warned by the agency that leads Luis Caputo in the other days, a relaxation of the monetary policy.
“Although the Central Bank anticipates an inflation scenario moderating after the third quarter, it is estimated the need to maintain the current contractionary bias of monetary policy until the path of inflation and expected inflation align with the 17% goal in December 2019.
On this point, Caputo reiterated his conviction that one can believe in a sustained decline in inflation, “particularly because we are taking all the necessary measures to do so. We have finished with the financing of the BCRA to the National Treasury, we have secured a strong international financial support and, additionally, the Treasury has committed to introduce a major fiscal effort. In addition, monetary policy will remain contractive until it is necessary. ”
In this context, Caputo reiterated that the inflation targeting regime will be reinforced by stricter control of monetary aggregates . “We raised the minimum reserve requirements, established that the relevant short-term interest rates are consistent with this new monetary contraction and we will continue to monitor the monetary aggregates so that there is no potential source of inflation rise in the system, but the interest rate and Inflationary targets will continue to be the main guide for monetary policy. ” Although at the same time, he acknowledged that in times of high inflation and financial volatility, “it is perhaps too much to demand from the rates that, by themselves, fulfill that role”.
Definitions of Caputo
The Central Bank distributed, in addition to the monetary report, a series of definitions by Luis Caputo.
Inflation report : It is a report that unfortunately has to relate the reasons for a new inflationary acceleration, but that at the same time describes a progressive improvement in the price outlook for the coming months, reinforcing not only the BCRA’s commitment to lower the inflation rate , but, more importantly, explaining the set of tools that are being used to achieve that goal.
Perspectives of inflation in the coming months: We are taking all the necessary measures to lower it. We have finished with the financing of the BCRA to the National Treasury, we have secured a strong international financial support and, additionally, the Treasury has committed to introduce a major fiscal effort. In addition, monetary policy will remain contractive until it is necessary.
Monetary politics: We maintain the inflation targeting regime, but in the current framework, we believe it is convenient to reinforce it with quantitative control measures of the monetary aggregates. Therefore, we introduced two successive minimum reserve increases, at the same time we established that the relevant short-term interest rates are consistent with this new monetary contraction. We will continue to monitor the monetary aggregates so that there is no potential source of inflation rise in the system, but the interest rate and inflation targets will continue to be the main monetary policy guide.
Monitoring of monetary aggregates and inflation targets : The inflation targeting framework relies mainly on the role of the interest rate as a disciplinarian of inflationary expectations. But in situations with high rates of inflation and financial volatility, it is perhaps too much to demand from the rates that, by themselves, fulfill that role. Then, the monitoring of monetary aggregates is a complement that in certain circumstances can offer an additional anchor for expectations.
Exchange rate: We firmly believe in the floating of the exchange rate because it is the regime that best allows cushioning external shocks. the BCRA will intervene in the exchange market when it considers that there are disruptions in its operation.