Argentina's central bank left its monetary policy rate at 27.25 percent for the second time in a row and poured cold water on hopes for further rate cuts in the short term, saying it would "exercise extreme caution, awaiting signs of disinflation compatible with the path sought before relaxing its monetary policy."
Today's statement by the Central Bank of Argentina (BCRA) is more hawkish than its last monetary policy statement from Feb. 14 when it merely said it would "act with caution" given mixed signs about inflation.
BCRA cut its policy rate twice in January by a total of 150 basis points after the government raised the 2018 inflation target to 15 percent from 8-12 percent, allowing the central bank to pursue a looser policy stance.
However, inflation and inflation expectations have continued to rise, with national consumer prices up by 1.8 percent in January for an annual rise of 25.0 percent, up from 24.8 percent in December. Core inflation was steady at 21.1 percent.
BCRA attributed the rise in inflation to higher prices of agricultural and petroleum products, with the depreciation of the peso playing a role.
Data suggest that inflation in February, both on the general level and the core components, will be above the January values and those of the fourth quarter of 2017, BCRA added.
In late December Mauricio Macri's government pushed back its goal of lowering to inflation to 5 percent by one year to 2020 and raised its 2018 target to 15 percent from a previous 8-12 percent.
For 2019 Argentina's inflation target is 10 percent.
The International Monetary Fund has forecast 2018 inflation of 16.3 percent, 2019 inflation of 11.8 percent and 10.0 percent in 2020.
After stabilizing between August and November 2017, Argentina's peso has been weakening since early December - pushing up import prices - and was trading at 20.2 to the U.S. dollar today, down 7.9 percent this year and down 22 percent since early 2017.
www.CentralBankNews.info
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