Argentina’s central bank left its monetary policy rate at 27.25 percent and confirmed it expects inflation to decelerate after the impact of a hike in regulated prices, such as utilities and transportation, and the recent peso depreciation wanes.
The Central Bank of Argentina (BCRA), which has kept its rate steady since cutting it twice in January by a total of 150 basis points, added it expects core inflation to remain high in April but to decline from March.
Argentina’s headline inflation rate rose to 25.4 percent in February from 25.0 percent in January and 24.8 percent in December, and the most recent survey of market expectations shows a rise in expected 2018 headline inflation to 20.3 percent from 19.9 percent and a rise in core inflation to 18.1 percent from 17.1 percent.
In addition, inflation expectations for 2019 rose to 14.3 percent from 14.0 percent and to 10.0 percent for 2020 from 9.7 percent, BCRA said, adding expected inflation for the next 12 months rose to 17.8 percent from 17.6 percent.
The central bank targets inflation of 15 percent for 2018 and 10 percent in 2019. In late December Argentina’s government pushed back its goal of lowering inflation to 5 percent by one year to 2020 and raised the 2018 target to 15 percent from a previous 8-12 percent.
After decelerating during last year, Argentina’s inflation rate has risen this year due to sharp increases in regulated prices, to reduce the government deficit, and a rapid fall in the exchange rate of the peso from December to March.
The BCRA has often maintained the recent rise inflation is transitory and once these factors evaporate, inflation will continue its downward trend.
Among the reasons for lower inflation are a more restrictive monetary policy that last year, wage increases in line with the 15 percent inflation goal and a slowdown in changes to regulated prices after April.
In addition, BCRA said its continuing intervention in the foreign exchange market means it doesn’t expect any significant depreciation of the peso in coming months.
As in recent months, BCRA said intervention in the currency market is complementary and not a substitute for monetary policy, and it remains convinced that depreciation in excess of what has already occurred is not justified by the economy or the planned course of monetary policy.
The central bank added that it considers its current policy bias as adequate to ensure that inflation declines toward its goal, but it “is ready to act by adjusting its monetary policy rate if this does not happen.”
After falling from early December through early March, the peso has stabilized in recent weeks and was trading at 20.15 to the U.S. dollar today, down 7.7 percent this year.
This article originally appeared on CentralBankNews.info and is reproduced here with permission from the author.