20171228-法国巴黎银行-Argentina__New_year,_new_inflation_target__6页_253kb

Argentina: New Year, New Inflation Target

Core Content

Argentina's central bank, BCRA, has postponed its goal of reducing the inflation rate to 5% from 2019 to 2020. This decision follows a reassessment of the inflation reduction timeline after two years of implementing the new monetary policy regime.

The official inflation targets for 2018 and 2019 have been revised upward to 15% and 10%, respectively, from the previously set 10% and 5%. Additionally, BCRA has decided to abandon the publication of an inflation target range (±2%) and will now only publish the official target.

Main Points

• Inflation Target Delay: The inflation target of 5% has been delayed by one year to 2020.
• Rationale: The authorities believe that the inflation reduction process will take longer than initially anticipated, based on new information.
• Revised Targets:
  • 2018: 15%
  • 2019: 10%
• Target Range Removal: BCRA will no longer publish an inflation target range, only the official target.
• Credibility Assessment:
  • The decision is viewed as pragmatic and does not necessarily undermine BCRA's credibility.
  • The central bank has maintained a positive real interest rate environment, indicating a strong commitment to inflation control.
• Fiscal Adjustments:
  • BCRA financing to the treasury will be reduced to ARS70bn in 2019 (from ARS140bn in 2018) and will be eliminated in 2020.
• Inflation Expectations:
  • Inflation expectations remain above the new targets, limiting the central bank's ability to cut interest rates in the short term.
  • The central bank does not expect a sharp increase in inflation expectations due to the change, but also does not anticipate a decline in the near term.
  • This suggests that BCRA will need to proceed cautiously to achieve the new inflation target.

Key Information

• The consensus expectation for inflation in 2018 is 16.6%, and in 2019 is 11.3%, which is close to the revised official targets.
• The delay in inflation target reflects a recognition that the previous targets were too ambitious and not achievable.
• The central bank's credibility is considered intact, as the decision is seen as a strategic adjustment rather than a lack of commitment.
• The fiscal policy has also been revised, with a focus on reducing BCRA's support to the government.
• The monetary policy remains constrained by persistent inflation expectations, which are not expected to fall significantly in the short term.

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Conclusion

The adjustment in Argentina's inflation targets reflects a realistic reassessment of the country's inflation trajectory, acknowledging the challenges in achieving the original goals. While the central bank has made a pragmatic decision, it has also maintained its commitment to inflation control. The central bank's credibility is not seen as being compromised, and the monetary policy remains constrained by persistent inflation expectations. The revised targets align more closely with market expectations, and the fiscal policy is being adjusted to support this new approach.