Argentina’s Central Bank unexpectedly cut its benchmark interest rate to 80 percent from 100 percent, as policymakers see monthly inflation cooling while the peso continues to strenghten against the US dollar in paralell markets.
Despite annual inflation over 250 percent, the monetary authority cited a range of factors in explaining the cut, including the steady rebuilding of reserves.
The policy change also comes as the government is in the midst of a record peso debt swap, attempting to exchange as much as 55 trillion (US$45 billion) of Treasury notes due this year for ones maturing between 2025 and 2028.
The doveish policy move contrasts February guidance from the International Monetary Fund in its most recent review of Argentina’s US$44-billion programme, where the staff wrote “going forward, the authorities agreed that the monetary policy stance would need to be tightened to support money demand and disinflation”.
More broadly, IMF officials have long insisted Argentina keep interest rate above inflation to incentivise savings in pesos and cool prices.
Following a similar rate cut last December, along with a 54 percent currency devaluation, many Argentines got out of 30-day deposits, transferring the money to their bank accounts to spend on a monthly basis so far,
While monthly inflation continues to cool and the paralell exchange rate stranghtens, the trade-off is a steep recession this year. Milei’s austerity measures wiped out social security spending and wages adjusted for inflation, or real wages, which are at their lowest level since 2003.
SOURCE: https://www.batimes.com.ar