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ECONOMY | 05-12-2018 14:18

Central Bank removes 60%-floor of benchmark interest rate

'As a result of the significant fall in inflation expectations for two consecutive months,' bank moves to eliminate 60-percent floor.

Citing a "significant" fall in inflation estimates, the Central Bank today eliminated the 60-percent floor on its main benchmark interest rate.

The move will lead to the institution gradually lowering its rates, which are currently one of the highest in the world, and have contributed to lower growth this year.

"As a result of the significant fall in inflation expectations for two consecutive months, and as contemplated, the 60-percent interest-rate floor has been eliminated," the institution said in a statement.

The measure "will help to lower the cost of credit a bit, but it has to move very slowly, it can not decrease much, otherwise there will be a run on the dollar," economist Héctor Rubini told the AFP news agency.

"The problem is that credit is paralyzed, and if it continues like this for six more months companies will go bankrupt," he added. "Though the drop in interest rates can not happen very fast."

The latest Central Bank survey of economists, conducted in November, predicted that inflation for the next 12 months would come in at around 29 percent. 

Inflation up until October this year came in at 39.5 percent, with the figure expected to surpass 45 percent by the end of the year. A new survey from the Central Bank predicted that the annual rate for 2018 would come in at 47.5 percent.

The Central Bank first raised its benchmark interest rate to 60 percent in August, as the peso plunged against the dollar. Argentina's national currency has lost around half its value this year.

According to the Reuters news agency, the institution also "tightened its foreign exchange trading band to two percent from three percent, beginning in 2019."

- TIMES/AFP

 

 

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