The Committee of Monetary Policy (COPOM) of Argentina’s Central Bank (BCRA) announced the intention to increase the monetary base by 2.5% per month for the next two months on Sept. 18.
“To ensure monetary and financial stability”
Per the announcement, the move is meant to ensure monetary and financial stability. The bank notes that it believes that the inflation of the Argentine peso caused by depreciation suggests a reduction in real monetary supply. The new exchange rate also lets observers project a real demand for sustained money, as the bank sees it.
The bank concludes that — given limited liquidity — it is necessary to update the originally established monetary base goals to avoid excessive monetary contraction. The update in question is a growth of the monetary base of 2.5% per month in September and October.
In the case of September, the variation is considered with respect to the bimonthly goal of July-August, leaving the monetary base objective for the current month at 1,377 billion Argentine pesos ($24.3 billion). The goals will be updated again based on the net exchange operations carried out by the BCRA from the date of publication of the statement.
Liquidity Letters interest rate increase
Furthermore — with the declared intention of guaranteeing the reductive nature of the monetary policy — COPOM decided to undertake a further monetary policy measure. More precisely, it decided to increase the lower limit for the interest rate of the Liquidity Letters (LELIQ) from the current 58% to 78% in September, during the inflationary peak. For October, this limit is set at 68%.
The commission hopes that both measures will allow the country to sustain a positive real interest rate and resume the deflation process from October. Lastly, the announcement also specifies that both the proposals have been unanimously approved by the COPOM members.
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