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The BCRA Implements a New Monetary Policy Scheme

The Monetary Policy Council (COPOM) has decided to implement from today the new monetary policy scheme that was announced on September 26th.

The BCRA commits to zero growth in the monthly average of the monetary base from October 2018 to June 2019. The monetary base targeting will be seasonally adjusted in December, when demand for money is higher. Should seasonal factors not be removed, there would be excessive monetary contraction. This target will be achieved by conducting daily transactions of Liquidity Bills (LELIQs) with financial institutions. The monetary policy rate will be the average rate of those transactions and will be calculated on a daily basis. Therefore, as the amount of money is exogenously determined, the monetary policy rate will be set by the supply and demand of liquidity, which will enable to move in the direction of zero growth in the monetary base. The BCRA undertakes not to allow the daily policy rate to drop below 60% annually until December 2018, honoring the commitments made under the former monetary scheme.

The monetary target is supplemented with foreign exchange intervention and non-intervention measures. The BCRA will not intervene in the market when the exchange rate is between 34 and 44 pesos to the US dollar. This measure will be implemented as from October 1st and the non-intervention range will be adjusted on a daily basis (whether business or non-business days) at a monthly rate of 3% until the end of 2018. The BCRA will allow the free floating of the exchange rate within this range. If the exchange rate climbs above the non-intervention range, the BCRA will sell foreign currency for up to 150 million dollars daily. These sales will cause an additional contraction of the monetary base, which will tend towards correcting excessive depreciation. On the contrary, if the exchange rate falls below the non-intervention range, the BCRA may intervene in the foreign exchange market by purchasing foreign currency and decide whether to withdraw or not the pesos disbursed in exchange for the US dollars. Only in the face of an increase in currency demand would the BCRA raise the monetary base above the 0% growth target backed by a rise in reserves.

The COPOM will be composed of Guido Sandleris, Governor; Gustavo Cañonero, Deputy Governor; Verónica Rappoport, Alternate Deputy Governor; Enrique Szewach, member of the Board; and Mauro Alessandro, Monetary Policy Strategy and Communication Senior Manager, who will act as a provisional member until the position of Economic Research Deputy General Manager is filled.

September 28th, 2018

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