Argentina cuts interest rates to 80% as inflation cools

The Central Bank of Argentina announced a significant decrease in its benchmark interest rate, reducing it from 100% to 80%.

This decision comes at a time when monthly inflation rates are beginning to decrease and the Argentine peso is gaining strength against the US dollar in parallel markets.

Argentina inflation trends

Despite facing an annual inflation rate exceeding 250%, the monetary authority pointed to various reasons for this rate cut, including the successful accumulation of reserves.

With the anticipation of the Argentina statistics agency releasing the February inflation data, experts are predicting a continuation of the cooling trend, with consumer price gains expected to be around 15% for the month.

However, the inflation rate every year is projected to surpass 280%.

This adjustment in monetary policy occurs alongside the government’s ambitious plan to restructure peso debt, aiming to exchange approximately 55 trillion pesos ($65 billion) of Treasury notes maturing this year for new ones due between 2025 and 2028.

IMF guidance

The move to lower interest rates contrasts with previous recommendations from the International Monetary Fund (IMF), which has advocated for tighter monetary policies to encourage savings in pesos and help control inflation.

This guidance comes in the wake of Argentina’s $44 billion program review by the IMF, highlighting the need for a more restrictive monetary stance.

After a similar rate reduction last December and a 54% devaluation of the currency, there was a notable shift by Argentines away from 30-day peso deposits, opting instead to keep their funds in bank accounts or convert them to dollars.

Argentina monetary strategy

The Central Bank of Buenos Aires has emphasized that despite the reduction in interest rates, there has been a significant 17% decline in the monetary base when adjusted for inflation since the new administration took office.

This strategy has contributed to a reduction in monthly inflation rates.

However, the economic adjustments, including rate cuts and austerity measures, have led to challenging trade-offs, such as a deep recession expected this year. These measures have significantly affected social security spending and real wages, which have dropped to their lowest level since 2003.