Despite eliminating the floor of the benchmark rate (Leliq) and anticipating a new surplus of the Monetary Base (BM) target in December, the Central Bank announced that it will continue to exercise caution in the coming months in order to achieve its goal of greatly reducing inflation. high.
"They have gone through a couple of months of volatility and we want to reinforce that eliminating the floor rate does not mean that we will lower our guard", sources of the BCRA said domain.com.
The monetary authority has abolished the 60 percent level of interest rates that prevailed before a significant drop in inflation expectations for two consecutive months. The average expectation of inflation for the next 12 months, measured by the Market Expectations Survey (REM), resulted in 29% in November, more than 4 points less than at the end of August.
"We arrived with two months of great caution and we want to continue showing what we are going to do, but the caution continues, it is not given because we have a floor of 60%, we will continue in this line in the next months", stressed the BCRA, and considered that it was "Convenient and convenient" to eliminate the floor of the rate, since it limited "the purely endogenous character of the interest rate in a regime of monetary aggregates."
At the same time, they stressed that this month will be "Extremely prudent so that the elimination of the rate does not generate sudden changes".
Following this announcement, in the bidding of Wednesday the Leliq rate pierced 60%, and the average reached 59.102% a year, the lowest level in more than months.
More than this new fall, in authority they refrain from marking a path and rate of rate reduction. They reiterate that "The projection of the level of rates is not important, because the rate is defined by the market. Today it is falling, but eventually it can rise." "We prefer this to be a reflection of market conditions", highlighted sources of the entity, who confirmed that the current monetary scheme will be maintained at least until the end of 2019.
The entity conducting Guido Sandleris He took the opportunity to give a little more and show some precisions about what will be the monetary base of December. In this sense, The Monetary Policy Committee of the Central Bank (COPOM) said it will also meet the December target, after reaching the same goal in October and November. The overvaluation will be at least $ 16 billion (includes seasonality).
"So far, we have exceeded the basic goal, which is diminishing, and that gives us room for maneuver. In December, we could have increased 6.3% of the original target, which was an increase of the current level of almost 8%. But what we decide is to anticipate that we will not use this space, but rather continue to maintain the excessive performance we have accumulated so far, " detailed sources of the entity.
In addition, the BCRA said it reduced its possible purchases in December dollars to 50 million 150 million through bids if the price of the currency penetrated the floor of the non-intervention zone. Thus, the accumulated in the month of these competitions can not exceed 2% of the target set. "This means that our decisions will be totally concentrated and subordinated to the control of liquidity, in addition to the evolution of the exchange rate"they explain.
Otherwise, if the exchange rate is located above the non-intervention zone, the monetary base target will be reduced by dollar sales made through BCRA offers. Thus, these bids will be up to 150 million dollars per day, the maximum contemplated in the monetary scheme.
In this context, the Copom also defined the limits of its non-intervention exchange zone for the first quarter of 2019 with a daily update at a monthly rate of 2%, against the previous 3%. "We felt it was an obligation to try to be much more demanding on the forecasts and that is why we established a lower slope," they said of the BCRA, and did not associate it with a possible appreciation of the exchange rate.
After knowing the announcement of the BCRA, before the opening of the market, the International Monetary Fund supported the measure. "Today's decisions … will help reduce inflation, and the IMF will continue to support the authorities as they carry out their program."Gerry Rice, the Fund's chief spokeswoman, said in a statement. "The new monetary policy framework … is giving results, as inflation expectations are falling and financial volatility has declined," he added.
The abandonment of the floor to the cost of credit was expected by the market, which foresees a gradual decline in the rates of levels above 74% reached when the BCRA launched its current scheme in order to calm the turbulence of the local market.
BCRA sources have confirmed that the monetary aggregates control scheme will be extended until at least 2019. "If this continues to work, surely everyone will shout to keep it, " they predict
Argentina still needs this scheme of monetary aggregates, especially to regain confidence in the peso. In the Central they explain that in times of little confidence in the currency, this scheme demands to be more rigorous with the absorption of weights, while in a moment of great confidence in the currency, there is room to be more expansive.