MercoPress. South Atlantic News Agency

Argentina's Central Bank lowers basic interest rate

The benchmark interest rate was standing at 133% when Milei took office

Given the significant fall in Argentina's inflation rate, the Central Bank (BCRA) announced Friday that it was lowering the basic interest rate from 40% to 35% in a move to “boost private credit.”

”The BCRA's decision is based on the consideration of the liquidity context, the drop observed in the inflation expectations shown both in the [Market Expectations Outlook - Relevamiento de Expectativas del Mercado) REM [report] and in the implied levels in the secondary securities market, and on the strengthening of the fiscal anchor,“ a BCRA statement read. The measure is effective as of Friday today and will affect fixed-term deposits offered by commercial banks to savers.

”We are now in a context of lower inflation and lower interest rates. If the economy recovers and the money supply remains stable, demand will increase, people will start to feel more comfortable with pesos and the demand for private credit in pesos will grow,” explained BCRA President Santiago Bausili.

According to private projections, October's inflation could stand below 3%. The National Institute of Statistics and Census (Indeec) is to announce the final figures on Nov. 12.

The last interest rate cut back in May resulted in a surge of the US dollar against the Argentine peso, so a rebound is not to be ruled out after October's 3.6% decline in the “blue” (a euphemism for “black”) market, which narrowed the gap with the official quotation. The Government is betting that the higher liquidity after the rate decrease will be compensated by an increase in the demand for money. The reactivation of credit demand is necessary to overcome the deep recessionary context the economy is going through.

Friday's was the first rate cut made by the BCRA since the Government's economic team launched phase two of its program consisting of migrating the BCRA's interest-bearing debt to Treasury securities.

The measure also brought about a reduction in the rate of active swaps to prevent a widening of the difference between the lending rate and the deposit rate. “If funding is too expensive, then entities would lose incentives to lend pesos to the private sector,” the financial website Bloomberg explained.

The benchmark interest rate was standing at 133% when the Libertarian administration of President Javier Milei took office on Dec. 10, 2023.