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ECONOMY | 01-11-2024 12:46

Argentina's Central Bank lowers benchmark rate to 35% from 40%

Argentina’s Central Bank lowers benchmark interest rate for the first time in nearly six months.

Argentina’s Central Bank lowered its benchmark interest rate Friday for the first time in nearly six months as President Javier Milei continues to oversee a slowdown in inflation in the crisis-prone economy.

The monetary authority cut borrowing costs to 35 percent from 40 percent, according to a press release sent via text message. The decision is based on the country’s liquidity context, the lowering of inflation expectations and the government’s fiscal anchor, the bank said. Argentina also lowered rates for notes known locally as pases to 40 percent from 45 percent.

The country’s sovereign bonds led gains in emerging markets following the news, with notes due 2030 and 2029 each climbing at least 0.6 cents on the dollar Friday morning.

Inflation under Milei has slowed to 3.5 percent in September, from 25.5 percent in December, marking the backbone of his political success. October inflation, due November 12, is expected to dip even further, according to private estimates.

When Milei first took office, he went on a flurry of rate cuts to shave off interest payments from the Central Bank’s balance sheet — a key requisite for the eventual lifting of currency and capital controls. The last time the bank had loosened monetary policy was in mid-May, when it cut borrowing costs to 40 percent for a sixth time, from an initial 133 percent.

Following the series of cuts in June, Argentina shifted its monetary policy scheme and migrated its Central Bank debt toward the Treasury. The moves aimed to close what the country’s economic team deemed one of the “faucets” of monetary emission that risked further fuelling annual inflation.

Positive real rates and a more flexible currency regime have long been requirements by the International Monetary Fund, which Argentina owes US$44 billion. The country has been looking into starting a new programme to replace the one negotiated by Milei’s left-wing predecessor. It’s unclear what might happen to monetary policy when FX and capital controls are eventually released.

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