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Argentina central bank holds benchmark rate amid higher inflation expectations

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Argentina central bank holds benchmark rate amid higher inflation expectations

Banco Central de la República Argentina, or BCRA, once again held its monetary policy rate at 27.25% as it pointed to continued inflationary pressure on the Argentine economy.

In a March 13 statement, the central bank said the results from its survey show estimates for general inflation increased in 2018 to 19.9% from 19.4%, while the core inflation expectation rose to 17.1% from 16.9%. Inflation estimates for 2019 and 2020 also ticked higher to 14% and 9.7%, respectively, from 13.5% and 9.1%.

Still, BCRA said it considers the month-over-month rise in prices in February to be temporary, and it believes inflationary pressure will ease once adjustments for tariffs and exchange rates take hold.

In its statement, the central bank also defended Argentina's floating exchange rate, even though it was forced to step in to combat a recent depreciation of the peso. BCRA noted that it had to carry out "occasional interventions, as a complement to its monetary policy, in the face of disruptive dynamics capable of altering the course of inflation or generating negative effects on financial conditions."

"The central bank will continue to monitor this situation, and will not relax its monetary policy until signs of disinflation compatible with the path sought are confirmed," the central bank said.

The regulator's monetary policy board lowered the interest rate by a total of 150 basis points during its two meetings in January, citing the desire for a lower rate of disinflation, but hit the brakes in February due to rising inflation expectations.

The central bank said it will continue to manage its monetary policy to reach its intermediate inflation target of 15% in 2018.