Interest rates and foreign demand
The Monetary Policy Committee of the Central Bank did not change the one-week repo auction rate, which is the policy rate, as expected, keeping it at 24 percent. In other words, the policy rate will be applied as 24 percent for approximately seven and a half months between September 13, 2018 and April 25, 2019.
We can’t predict if unusual developments will occur in that period forcing the Central Bank to make changes to the rate through the overnight or late liquidity window but there are no conditions that require interest to be increased.
Foreign demand warning
The Central Bank’s warnings about inflation continue to be the same. But first, let’s talk about the change in terminology on foreign demand. In recent monetary policy statements, the phrase used was: “foreign demand preserved its strength.” This time, a word has been added to the relevant section of the statement: “foreign demand maintains its relative strength.” It appears that the Central Bank means that foreign demand is not as strong as before. This detail is important. A central bank would not use such an expression merely for style. It is understood that the rate of increase in exports for some time will gradually slow down and perhaps turn negative.
No change to inflation outlook
The Central Bank’s views on inflation are unchanged. It acknowledges some improvement in inflation indicators due to imported input costs and domestic demand developments, but still warns: “In the meantime, risks to price stability are still continuing.” And then that expression which has become a classic: “The committee decided to maintain a tight monetary stance until a marked improvement in inflation is achieved.”
In the last section of the Monetary Policy Committee’s statement, the statement does not change at all: “The Central Bank will continue to use all of its instruments in line with its primary objective of price stability. Additional monetary tightening can be made if necessary and inflation expectations, pricing behavior, the lagged effects of monetary policy decisions, the contribution of fiscal policy to the balancing process, and other developments affecting inflation will be monitored closely.”