MercoPress. South Atlantic News Agency

Argentina: Interest rates soar in response to new BCRA rules

“We believe that this rate hike will be temporary,” Caputo noted

Argentina's financial system is experiencing significant tension as a new reserve requirement scheme from the Central Bank (BCRA) forces financial institutions to drastically raise interest rates on fixed-term deposits. The average rate for a 30-day fixed-term deposit has jumped to 51.3%, a substantial increase from just a few weeks prior.

This change requires banks to hold reserves daily, complicating their liquidity management and forcing them to attract more deposits by offering higher yields. While this benefits depositors, it also makes credit more expensive for consumers and businesses, impacting everything from loans to mortgages.

In this scenario, major private banks are now offering rates between 50% and 58%, while public banks like Nación have raised their rates to 47%. In some cases, major corporate deposits are being negotiated at rates as high as 60%.

The government's economic strategy is to tighten the peso market, prevent money from shifting to the US dollar, and curb inflation, even if it means slowing down credit and economic growth.

Economy Minister Luis Toto Caputo said this phenomenon was “temporary,” driven mainly by “electoral volatility.” He stated that the high rates were a reaction to the political risk perceived by the market and became a necessary step to stabilize the economy.

Caputo expects rates to fall after the upcoming elections in September and October, as he believes the government will perform well, which will alleviate market uncertainty. He admitted that the high rates will have a short-term impact on economic activity but anticipates a rapid recovery once the elections are over.

“We believe that this rate hike will be temporary, because the elections will be very favorable for [the ruling] LLA” of President Javier Milei, said Caputo.