MercoPress. South Atlantic News Agency

Argentina's BCRA again lowers basic interest rates in less than one week

It was the fifth cutdown since the Libertarian administration of President Javier Milei took office in December last year

Argentina's Central Bank (BCRA) once again lowered the benchmark interest rate from 60% to 50%. It was the fifth cutdown since the Libertarian administration of President Javier Milei took office in December last year. Thus, yields from fixed-term deposits will fall monthly from the current 5% per month to 4.2% for an annual effective rate of 64.8%.

“The BCRA's decision is taken in consideration of the financial and liquidity context and is based on the rapid adjustment of inflation expectations, the strengthening of the fiscal anchor, and the contractionary monetary impact derived from the seasonality in the Treasury's external payments in the current quarter,” the Central Bank said in a statement.

The initiative was taken less than a week after reducing it from 70% to 60% given a consensus within financial circles that April's inflation would be in single digits and it would continue to decrease this month. For banks, savers, and companies alike, the BCRA's decision to accelerate liquefaction in the face of inflation seeks to change the economic dynamics. Since March, the BCRA released banks from the minimum rate ceilings for term deposits. However, in the last 3 rate cuts, entities have been quick to pass on these cuts to the yields they pay on fixed-term deposits.

The strategy seeks that banks start reducing the rate they charge for loans and focus on raising pesos to lend to families and companies to boost the economy. President Javier Milei, a graduate economist, has said that the way out of Argentina's crisis was “with credit and people's savings.”

Despite all optimistic projections, Milei's government backtracked on its decision to apply a fuel tax that would entail a fare hike in utilities this month to keep inflation within target, it was published in the Official Gazette. The measure has thus been postponed. However, the new formula for monthly updating of gas and electricity rates so they do not lag behind inflation was to become effective this week.