The Central Bank of Argentina implements its monetary policy in order to comply with section 3 of its Charter: “The purpose of the Bank is to promote — within the framework of its powers and the policies set by the National Government — monetary and financial stability, employment, and economic development with social equality.”
The Central Bank promotes monetary stability by fostering a systematic and sustainable decrease in the inflation rate.
The Argentine monetary policy focuses on monetary stability, i.e. price stability, the remaining objectives being achieved through more specific instruments.
The Central Bank promotes monetary stability by fostering a systematic and sustainable decrease in the inflation rate, which is expected to go down to 5% annually in 2022.
In order to achieve this objective, the Central Bank decided to use inflation targeting in 2016. Within the framework of this regime, it conducts monetary policy to reach the inflation targets set by the Executive Branch. The Central Bank is functionally independent, in other words, it is vested with authority to opt for the monetary policy instruments it may deem appropriate to meet the targets. Moreover, the Central Bank makes available to the public its outlook and the measures it implements in a transparent way. It is further accountable to society for the fulfillment of its objectives.
Future year-on-year (December) inflation targets are: 17% for 2019, 13% for 2020, 9% for 2021, and 5% from 2022 onwards.
The Central Bank’s monetary policy mainly relies on the short-term interest rate. This rate lies in the center of the 7-day repo corridor, with a reverse repo rate ceiling, and a repo rate floor.
Once the benchmark interest rate is set, both the monetary base and the other monetary aggregates either increase or decrease in keeping with liquidity needs. If the monetary base expands or shrinks on grounds other than a higher or lower level of demand for money, any excess or shortfall in liquidity is absorbed or covered at once. The Central Bank addresses liquidity needs through repo transactions, purchase and sale of securities along with LEBAC bill and NOBAC note auctions.
Within this monetary regime where the Central Bank sets the short-term interest rate, market forces play out in a floating exchange rate system. The Central Bank may operate in the foreign exchange market to strengthen its balance sheet and to avoid unreasonable fluctuations.
The Monetary Policy Council of the Central Bank is composed of the Central Bank’s Governor, the Deputy Governor, the Second Deputy Governor, the General Manager, the Deputy General Manager for Economic Research, and the Deputy General Manager for Operations.
The monetary policy rate is discussed in the Monetary Policy Council and it is made available to the public in the Monetary Policy Press Release two Tuesdays a month at 5:00 p.m.
The Central Bank describes its monetary policy by the following means:
Monetary Policy Report | This is a quarterly publication that unfolds monetary policy in terms of the evolution of the economy and prices from the Central Bank’s perspective. The Governor holds a press conference every time a report is published.
Monetary Policy Release | This release is submitted twice a month to announce the policy rate decisions adopted by the Central Bank.
Monthly Monetary Report | This report describes the evolution of the main monetary variables.
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The Central Bank agreed to transfer funds to the National Treasury for up to 160 billion pesos for 2016. The maximum annual financial aid to the national tax authority amounted to 150 billion pesos for 2017.
To build credibility in the disinflation scheme, it is important to determine the amounts of transfers to the Treasury on an accurate basis. To do so, and in order to strengthen people’s trust in the new targets, the Executive Branch informed—on December 28, 2017—the established path for such transfers. It further confirmed 140 billion pesos (1.1 percent of GDP) for 2018 and a drop to 70 billion pesos (0.5 percent of GDP) for 2019. From 2020 onwards, the Central Bank will transfer the product of the monetary base by the real growth rate of the Argentine economy. This means that the Central Bank will transfer the genuine increase of money demand (monetary base) to the National Treasury. In other words, what is transferred is the increase of money demand derived from the real growth of the economy. Moreover, the Central Bank will keep the difference between the amount transferred and the nominal increase of money demand in order to support its balance sheet by purchasing assets or discharging non-monetary liabilities.