Monday , May 27 2019

Argentina nears end of a key rate floor


Argentina’s central bank may eliminate the floor on its benchmark interest rate in early December if it sees a second consecutive decline in inflation expectations, according to two people with direct knowledge of the plan.
The decision to eliminate the 60 percent floor may come as early as December 3, said the two people. Policy makers want to see both the median and average estimate for 12 month CPI expectations drop in the November survey of economists, the people said. The survey will be published on December 4.
Easing of monetary policy may aide an economy that is headed into its second recession in three years. The central bank had promised to hold key rate at at least 60 percent as part of a record $56.3 billion credit line with International Monetary Fund. The bank raised rates to the highest in world in October to slow decline in the currency.
Expectations fell in the central bank’s October survey of economists. The benchmark rate has fallen more than 10 percentage points to 62.5 percent. It is set through daily auctions of 7-day Leliqs.
The new monetary policy, which includes a currency band in addition to the daily auctions, has stabilised the peso, the worst performing currency emerging markets this year. The peso is up 15 percent since on Sept. 28, a day before the new policy was put in place . Analysts have warned that the extremely tight monetary policy will have a negative impact on economic activity.

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