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ECONOMY | 28-01-2020 14:05

Central Bank expects considerable drop in inflation this year

Institution has made largest interest rate cut in the world in recent weeks, in an attempt to revive an economy that is forecast to contract by 2020 for the third straight year.

Argentina's Central Bank is forecasting a significant and sustainable slowdown in inflation this year, despite consumer prices having risen by 54 percent in 2019.

"We are looking for a gradual but sustainable fall in the inflation rate through a focus on prudent and consistent monetary policy coordinated with wider economic policy," the bank affirmed in a statement that laid out its objectives on prices, credit, exchange rate and economic activity.

Dependence on "excessively high" interest rates to curb inflation has been ineffective and counterproductive, due to inflationary inertia and lack of depth in Argentina's credit markets, policymakers said in the statement.

The bank did not give further details on how much it expects inflation to slow or over what period.

Miguel Pesce was named Central Bank governor on December 10, under the new administration of Alberto Fernández. Under his leadership, the bank has reduced rates by 13 percentage points.

Interest rates should be set at a level that maintains financial stability and encourages savings in pesos, according to the bank. This means avoiding setting interest rates at levels below inflation, it added.

The rate is currently at 50 percent, a few percentage points below inflation.

Policymakers are aiming for a "prudent" expansion of the monetary base this year while making credit more accessible to both households and businesses, according to the statement.

by Patrick Gillespie, Bloomberg

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