10/01/2018 Economy

Argentine central bank cuts basic rate to 28%; annual inflation target 15%

Argentina’s central bank cut its policy rate to 28% from 28.75%, two weeks after relaxing its 2018 inflation target, the bank said on Tuesday. The bank’s first rate cut in 14 months came after a December 28 news conference announcing an official inflation target for this year of 15%, up from the bank’s previous target range of 8% to 12%.



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Argentina also has a new 2019 inflation target of 10% and 5% for 2020. “This pathway is now the objective of central bank monetary policy,” the bank said in a statement, adding it will be “cautious” in its approach to hitting the new targets.

“Naturally, if you seek a lower rate of disinflation than planned originally, the path of monetary policy will be less contractive than the one before,” the statement said.

Economist Guido Lorenzo of local consultancy ACM Consultores said Tuesday’s rate cut should have been deeper. “Going forward it will be much more difficult to cut the rate after January and February inflation data comes in,” he said.

“The time was now,” he added. “Going forward it will be more difficult to justify a drop in rates.”

Based on expectations of lower interest rates, the local peso has weakened 1.7% so far this month to 18.9650 per U.S. dollar, after falling 14.9% in full year 2017. A survey of economists published by the central bank earlier this month showed median inflation expectations of 17.40% for 2018 and 11.6% for 2019.

Argentine December and full-year 2017 consumer price data is scheduled to be released on Thursday. Inflation was 21% in the first 11 months of 2017.