(Adds quotes and details from central bank statement, background on Argentina economy)
BUENOS AIRES, Jan 23 (Reuters) - Argentina’s central bank cut its policy rate to 27.25 percent on Tuesday from 28 percent previously, the monetary authority said in a statement, the second straight cut since the government relaxed its inflation target.
The move comes after central bank Governor Federico Sturzenegger said on Monday he expected regulated prices for services like utilities and transportation to rise 21.8 percent in 2018, below economists’ forecasts and below the 38.7 percent increase last year as President Mauricio Macri cut subsidies.
That helped cut the deficit to 3.9 percent of gross domestic product, but contributed to inflation of 24.8 percent, far above the central bank’s 12-17 percent target for 2017. Sturzenegger’s comments were widely interpreted as dovish and sent the peso currency tumbling amid expectations of a cut.
“The continuation of the disinflationary process as 2018 begins benefits from more favorable initial conditions than in 2017,” the bank said in the statement. “The contractionary bias in monetary policy is greater, with a real interest rate much higher than at the beginning of 2017.”
In late December, Argentina changed its 2018 inflation target to 15 percent, up from 8-12 percent previously, giving the central bank margin to cut rates.
In the statement, the central bank said that while its high frequency indicators were giving “mixed signals” about the evolution of prices, the current contractionary bias of monetary policy is “still somewhat elevated.”
Reporting by Luc Cohen; Editing by Chris Reese and Sandra Maler