January 31, 2019. The Monetary Policy Council of the BCRA (COPOM) has decided to provide further information on the development of the monetary scheme for February.
The BCRA continues to comply with the Monetary Base (MB) target. In January, the MB averaged ARS1,345 billion—ARS12.1 billion below the target, and 0.6% above December’s average.
The demand for instruments in pesos grew in January, in particular time deposits, which increased 8.5% vis-à-vis December. This dynamics went hand in hand with the development of the foreign exchange market. The foreign exchange rate stood below the non-intervention range for most of the month, as a result of which the BCRA has started to implement the mechanism of foreign currency purchases established in the monetary scheme. The BCRA purchased USD560 million (equivalent to ARS20.8 billion, 1.55% of the MB target as of January 1), as defined in the COPOM's previous meeting. As a result of these purchases, an amount of ARS6.7 billion has raised the MB target of January; the total of ARS20.8 billion has been allocated to the months that follow.
The BCRA was cautious about the management of the MB expansion. The role of intermediation in the financial system has been played with some delay. Therefore, the BCRA adjusted the speed of monetary expansion to the present time situation.
The COPOM holds that the MB target for February is consistent with the estimated demand for assets in pesos. However, the BCRA will cautiously deal with the speed of monetary expansion, which would imply an over compliance of the target depending on monetary market conditions. This possible overcompliance will be reverted in the coming months.
The COPOM drew up the following guidelines for potential interventions that could occur, in case the foreign exchange rate fell outside the non-intervention range in February:
If the foreign exchange rate were below the non-intervention range, the BCRA would be able to increase the monetary base target by purchasing US dollars through auctions. These auctions will amount to, as a maximum, USD75 million a day. The total amount to be auctioned over the month in pesos may not exceed 3% of the target as of February 1, which is ARS1,372 billion.
If the foreign exchange rate were above the non-intervention range, the BCRA would be able to shrink the monetary base target by selling US dollars through auctions. In order to maximize the impact on liquidity, the BCRA may auction up to USD150 million daily, as established in the monetary scheme.
The BCRA’s main objective is to reduce inflation, which is still very high. The COPOM considers that a tight control of monetary aggregates among other decisions taken for February will lead to attain such objective.
The measures described here have been adopted with the unanimous approval of all COPOM members. The COPOM is composed of Guido Sandleris, Governor; Gustavo Cañonero, Deputy Governor; Verónica Rappoport, Alternate Deputy Governor; Enrique Szewach, member of the Board appointed by the Board of this Central Bank; and Mauro Alessandro, Economic Research Deputy General Manager.