Monetary Policy Octo ber 2018 BCRA | BCRA | BCRA | BCRA | BCRA | - PowerPoint PPT Presentation

Monetary Policy Octo ber 2018 BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA

Agenda 1 | Recent developments 2 | Monetary plan: framework and implementation 3 | Sustainability 2 BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA

1 | Recent developments 3 BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA

Recent developments Prices • Monthly inflation has CPI (m.o.m. % change) accelerated since June, reaching a very high rate % during September. 8 7.6 7 6.5 • Although lower than in Headline 6 September, we still expect a Core high inflation in October due to 5 the pending pass through of the 4 peso depreciation during 3 August. 2 1 0 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Source | INDEC. 4 BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA

Recent developments Prices • y.o.y. inflation is high. CPI (y.o.y. % change) • y.o.y. inflation will still be high % in the months to come, though 70 Headline monthly inflation rates would Seasonal 60 start to decrease. Regulated 52.5 50 Core • The inflation rate of regulated 40.5 prices is above the headline 40 38.9 rate due to the adjustments 30 in relative prices. 27.3 20 10 0 Nov-16 Nov-17 Note | National coverage CPI linked with the Sep-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 GBA-CPI and the CPI-NP calculated by the BCRA. Source | INDEC. 5 BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA

Recent developments Inflation expectations • At the end of August, inflation Inflation expectations expectations rose sharply. % % 18 45 • The dispersion of inflation expectations also increased, 16 40 reflecting the prevailing 14 35 uncertainty. 32.9 12 30 • At the end of September, both 10 25 series halted their rise after the 8 20 announcement of the new plan, but are still at high levels. 6 15 4 Expectations Dispersion 10 12 months Inflation Expectations (average - right axis) 2 5 0 0 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Source | REM-BCRA. 6 BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA

Recent developments Exchange rate • The sharp increases in inflation Nominal Exchange Rate and inflation expectations were $/US$ related to the increase of more 44 Sep-18: than 100% of the US dollar +28.6% 40 against the peso since April. 36 • Need to introduce profound Aug-18: changes to reduce uncertainty. +8.3% 32 Jun-18: Jul-18: +12.4% +4.0% May-18: 28 +16.8% 24 20 16 Jan-01-18 Jan-17-18 Feb-02-18 Feb-18-18 Mar-06-18 Mar-22-18 Apr-07-18 Apr-23-18 May-09-18 May-25-18 Jun-10-18 Jun-26-18 Jul-12-18 Jul-28-18 Aug-13-18 Aug-29-18 Sep-14-18 Sep-30-18 Source | BCRA. 7 BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA

2 | Monetary plan: framework and implementation 8 BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA

Framework Why this path? • Need to recover a nominal anchor. • Loss of credibility in the BCRA's ability to meet inflation targets. • Framework based on a tool under direct control of the BCRA. • Facilitated by the zero primary fiscal deficit and the end of BCRA´s transfers to the Treasury. • Starting point with a competitive real exchange rate and treasury financial needs already covered. 9 BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA

Framework Main topics of the plan Monetary aggregate target: 0% growth of the Monetary Base. • • Monetary base is a tool under direct control of the BCRA. • Liquidity control limits inflationary acceleration or excessive depreciation. • Very strict and easy to follow-up target to produce an expectation shock. Complementary action in the case of excessive depreciation of the peso. • • Sign of decrease in the demand of peso assets. • Capacity to implement a greater monetary contraction via intervention in the exchange rate market mopping up pesos (upper bound intervention zone). Complementary action in the case of strong appreciation of the peso. • • Sign of confidence and higher demand of pesos. • Capacity to increase monetary base backed with international reserves (lower bound intervention zone). 10 BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA

Framework Nominal monetary base target • Growth rate of the monthly Monetary base (monthly average stock) average of the monetary base equal to 0% until June 2019. $ billion 1,500 • Seasonal adjustments of the 1,400 monetary base in December 1,300 and June, months with higher 1,200 money demand. 1,100 1,000 900 800 700 600 500 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jun-19 Source | BCRA. 11 BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA

Implementation Monetary base evolution • The target was met in October Monetary base (-1.5% m.o.m.) $ billion 1,400 September October 1,350 1,300 1,271 1,271 1,250 1,252 1,200 Recorded Target 1,150 Accumulated average 1,100 Sep-01 Sep-03 Sep-05 Sep-07 Sep-09 Sep-11 Sep-13 Sep-15 Sep-17 Sep-19 Sep-21 Sep-23 Sep-25 Sep-27 Sep-29 Oct-01 Oct-03 Oct-05 Oct-07 Oct-09 Oct-11 Oct-13 Oct-15 Oct-17 Oct-19 Oct-21 Oct-23 Oct-25 Oct-27 Oct-29 Oct-31 Source | BCRA. 12 BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA

Implementation Evolution of the monetary base • The challenge to keep an Monetary base (October vs. September) unchanged monetary base (on average) during October was $ billion more demanding due to the $ -18.7 B 1,500 -1.5% mid-September increase in reserve requirements. 1,400 1,307 • Considering this, the decrease 1,300 1,271 1,252 was equivalent to one of $54.7 $ -54.7 B -4.2% billion. 1,200 1,100 1,000 Recorded Adjusted by reserve Recorded requirements September October Source | BCRA. 13 BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA

Implementation LELIQ auctions: size and rates • LELIQ daily auctions to meet LELIQ Auctions monetary base target. million (NV $) ANR • The interest rate is set by the 75% 400,000 74.10% 74.04% 73.99% 73.92% 74.00% 73.90% market. 74% 350,000 73.31% 72.75% 73% 72.73% 72.20% 300,000 72.50% 72.60% 72.01% 72.54% 72% 72.00% 71.87%71.76% 70.90% 250,000 71.27% 71.73% 71% 70% 200,000 70.05% 69.99% 69% 150,000 68% 68.05% 100,000 67.18% 67% 50,000 66% 65% 0 Oct-01-18 Oct-02-18 Oct-03-18 Oct-04-18 Oct-05-18 Oct-08-18 Oct-09-18 Oct-10-18 Oct-11-18 Oct-12-18 Oct-16-18 Oct-17-18 Oct-18-18 Oct-19-18 Oct-22-18 Oct-23-18 Oct-24-18 Oct-25-18 Oct-26-18 Oct-29-18 Oct-30-18 Oct-31-18 NV | Nominal value. Note: *Includes the auction of LEBAC of 10/16/18 Source | BCRA. Due amount Allocated amount ($) Maximum ANR allocated Average rate 14 BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA | BCRA