The monetary policy of the Central Bank of Argentina is in line with section 3 of its Charter: “The purpose of the Bank is to promote—within the framework of its powers and the policies set by the National Government—monetary and financial stability, employment, and economic development with social equality”. In addition, the Central Bank observes other rules of a more specific nature. Nevertheless, its monetary policy focuses on monetary stability, i.e., price stability.
The Central Bank promotes monetary stability by fostering a systematic and sustainable decrease in inflation rate which is expected to go down to 5% annually in 2019. Year-on-year (December) inflation targeting rates set up to 2019 are between 12% and 17% for 2017, 8% and 12% for 2018, and 5% for 2019. The monthly inflation for the fourth quarter of 2016 is expected to fall to 1.5% or less.
Within the framework of inflation targeting, the Central Bank explicitly announces its inflation targets, and is empowered to use instruments of monetary policy with a view to fulfilling its targets. The Central Bank makes known its outlook and the measures it implements at any time on a transparent way. Moreover, it is accountable to society for the fulfilment of its objectives.
The Central Bank’s monetary policy mainly relies on short-term interest rates. Along 2016 interest rate has gone hand in hand with LEBACs with 35 days maturity. In turn, the Central Bank has sets an interest rate band for repo and reverse repo transactions with domestic banks. In addition, the Central Bank seeks to cause LEBAC shortest term rate to be consistent with interest rate bands and a decreasing inflation as well. As from January 2017, the monetary policy rate will agree with the interest rate for 7 days.
Once the benchmark interest rate is fixed, both monetary base and monetary aggregates either increase or decrease in keeping with liquidity needs. If the monetary base expands or shrinks on grounds other than a higher or lower level of demand for money, any excess or shortfall in liquidity is immediately absorbed or covered by the Central Bank. The Central Bank addresses liquidity needs through repo transactions, purchase and sale of securities along with bill and note auctions.
In a monetary scenario marked by short-term interest rates, the Central Bank has set a flexible exchange rate. The BCRA operates in the foreign exchange market to strike a balance and prevent unreasonable fluctuations.
The Monetary Policy Council of the Central Bank will be responsible for setting the benchmark interest rate as from 2017. The Council is composed of the Central Bank’s Governor, the Deputy Governor, the Second Deputy Governor, the General Manager, the Deputy General Manager for Economic Research, and the Deputy General Manager for Operations. It is empowered to fix and announce the monetary policy rate every Tuesday at 5pm.
The Central Bank has agreed to transfer funds to the Treasury for up to 160 billion pesos for 2016. The determination of a ceiling transfer has endowed the Central Bank with a reasonable level of flexibility and predictability to focus on its inflation targeting.
The total annual amount available for assistance to the national tax authority has been fixed in 150 billion pesos in aggregate for 2017.
The Central Bank posts its monetary policy through different channels, namely: the Monetary Policy Report , published quarterly together with the Governor’s press conference, the Monthly Monetary Report, and the fortnightly release of Monetary Policy. The Monetary Policy Report unfolds the Central Bank’s monetary policy actions from in terms of its perspective on the evolution of the economy in general, and of domestic prices, in particular. In turn, the Monthly Monetary Report describes the evolution of the main monetary variables. Finally, the weekly release of monetary policy addresses such decisions about monetary policy as the Central Bank makes every Tuesday.