MercoPress. South Atlantic News Agency

Argentina's Central Bank lowers basic interest rates

The new contraction will be used to pay less interest

Argentina's Central Bank (BCRA) this week lowered the benchmark interest rate by another 10 percentage points to 60% annually, it was reported in Buenos Aires. It was the fourth such cut since Javier Milei took office on December 10, 2023, when the rate stood at 133%. “BCRA announces that as of 04-25-2024, the rate for 1-business-day maturity passive operations will be 60%,” it said in a statement. It was also the second 10-point cut in April alone.

The measure is expected to hit investment funds aimed at fixed maturities, including those offered by virtual wallets to keep the money in the account. These instruments have already been hit by previous cuts. The BCRA's decision coincided with the government of President Javier Milei's plans to issue bonds at lower rates amid falling yields in the banking system. The 60% nominal annual rate translates into an effective annual rate of 82%, which is well below inflation expectations for the next 12 months which stand at 120% according to the latest BCRA survey.

The Argentine government insists that inflation is “collapsing” as some indexes would suggest. However, daily household expenses have yet to reflect the libertarians' celebrations in this regard.

In this scenario, analysts predict that “at some point, the dollar will react,” meaning that the AR$ 1,000 / US$ 1 parity will not remain unchanged in the medium term. But as long as there is a rate set by the government, interest rates could be lowered, it was explained. Once the so-called “stocks” (or exchange rate controls) are lifted, things are bound to change. For the time being, the financial versions of the US dollar went up 2% after the BCRA announcement.

The new contraction will be used to pay less interest to the banks for the overnight passes. The first cut had taken the monetary policy rate from 133% to 110%, the second from 110% to 80% and the third had left it at 70%. This time, the cut was of 10 points to bring the NER to 60%.

Monetary policy is an instrument to fight inflation. In Argentina, the main strategy for years has been price controls and agreements with the sectors that manage the country's supply of products, instead of adjusting the Central Bank's benchmark interest rate to encourage spending or saving. The latest measure shows a government path that seeks to keep the rate in negative terms compared to inflation.