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ECONOMY | 14-05-2024 20:32

Central Bank cuts interest rate for sixth time to 40% as inflation slows

Argentina cut its benchmark interest rate Tuesday for a sixth time under President Javier Milei.

Argentina cut its benchmark interest rate Tuesday for a sixth time under President Javier Milei as his government sees inflation edging lower while it shrinks the Central Bank’s balance sheet.

The monetary authority lowered its key rate to 40 percent from 50 percent, according to a statement published on its website. Borrowing costs have now fallen from a high of 133 percent last December.

Argentina’s monthly inflation has slowed since Milei took office December 10, easing to 8.8 percent in April from 26 percent in December. His economic team sees the trend continuing as it forecasts consumer price increases waning to 3.8 percent by September, according to a presentation seen by Bloomberg News. That’s much lower than the 5.8 percent rate expected by analysts in a Central Bank survey. 

However, annual inflation continued to run hot at 289.4 percent in April, its highest level in about three decades, according to official statistics.

The rate decision comes after the International Monetary Fund’s staff signed off on the eighth review of Argentina’s US$44-billion programme. If approved by the IMF’s executive board, that move would give the country some US$800 million in breathing room to honour debt repayments to the Washington-based lender. 

While Milei’s monetary policy goes against the IMF’s orthodox recommendation for real positive rates, officials expect lower borrowing costs will allow the Central Bank to clean up its debt-laden balance sheet and absorb excess liquidity as key steps before lifting capital controls. 

by Kevin Simauchi & Ignacio Olivera Doll, Bloomberg

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