| BUENOS AIRES
BUENOS AIRES Dec 15 As Argentina's economy
remains mired in recession and high inflation one year into
President Mauricio Macri's term, economists have begun to doubt
the central bank can reach its inflation targets after rate cuts
some have called unjustified.
The monetary authority, run by former chief of Buenos Aires
city bank and Macri-appointee Federico Sturzenegger, is trying
hard to restore credibility and independence that was largely
lost under the previous government.
Sturzenegger and the rest of the board raised eyebrows among
economists, however, when they lowered rates for four straight
weeks starting Nov. 8. It was a move that some said looked aimed
at boosting growth rather than fulfilling the bank's
"There's no doubt that in the month of November, the central
bank was acting politically," said Rodolfo Rossi, an orthodox
economist who served as central bank chief in 1989 and 1990,
noting that further deterioration in the recession-stricken
economy could have led to layoffs or unrest in December, a time
of frequent protests in Argentina.
Finance Minister Alfonso Prat-Gay has praised the cuts,
telling reporters earlier this month that lower rates would lead
to more investment, consumption and growth.
In September, Sturzenegger announced specific inflation
targets through 2019, making the bank's mandate of lowering
inflation, rather than boosting growth, clear as it tries to
normalize monetary policy.
The central bank's stated independence under Macri have been
welcomed by economists and markets, after the previous board
largely obeyed former populist President Christina Fernandez's
directive to print money to finance deficits and fork up foreign
currency reserves to prop up the peso currency.
But the November cuts tested confidence in the new
inflation-targeting regime. Weekly cuts continued despite data
on Nov. 10 showing October inflation of 2.4 percent, well above
the central bank's goal for average monthly inflation of 1.5
percent for the final quarter of the year.
Data on Thursday showed November inflation cooled to 1.6
percent, still above-target.
October inflation was particularly high because of the
removal of subsidies for home-heating natural gas, a one-time
factor. Sturzenegger has said rate decisions are "prospective,"
and the October inflation figure had no bearing on its November
"How strange, they lower the rates when inflation rises,"
Sturzenegger said at a conference on Wednesday, addressing the
central bank's doubters. "No, in reality we kept the rate high
in September because we knew October was complicated."
Economists' expectations for 2017 inflation increased to
20.2 in a central bank survey published in early December, up
from 19.7 percent in the previous month and well above the
central bank's target range of 12 percent to 17 percent. The
benchmark policy rate currently stands at 24.75 percent.
"Since inflation expectations were on the rise, it was not
clear what they were responding to," Mauro Roca, an economist at
Goldman Sachs, said of the November cuts, noting that core
inflation data also surprised to the upside, while the recession
was lasting longer than expected and the peso was appreciating.
But the central bank has kept rates steady during the first
two weeks of December, waiting for a more opportune time to
continue cutting rates, which Roca said showed its November
behavior will likely be "the exception, or a blip" in what has
so far been a consistent, and successful, focus on inflation
Rossi said he expects the central bank to "correct" for the
November rate cuts with a more hawkish stance next year.
(Reporting by Luc Cohen; Editing by Caroline Stauffer and Bill