For the sixth time under President Javier Milei, Argentina has reduced its benchmark interest rate for the sixth time showing confidence in the country’s slowing inflation and a strategy to shrink the central bank’s debt-laden balance sheet.
According to the media reports, the central bank announced on Tuesday that the key rate was lowered from 50 % to 40 %, continuing a downward trend from a peak of 133 % last December. Argentina’s monthly inflation has shown signs of easing, dropping to 8.8 % in April from a 26 % in December since Milei took office on December 10.
Milei’s economic team projects that consumer price increases will decline further to 3.8 % by September, a forecast more optimistic than the 5.8 % anticipated by analysts in a central bank survey. Argentina’s annual inflation rate remains high at 289.4 % as of April, marking the highest level in nearly three decades.
This inflationary pressure underscores the complexity of the economic challenges facing Milei’s administration. The latest rate cut follows the International Monetary Fund’s (IMF) staff approval of the eighth review of Argentina’s $44 billion financial program.
This approval would provide Argentina with approximately $800 million to help meet its debt obligations to the IMF if endorsed by the IMF’s executive board. Milei’s approach to monetary policy contrasts with the IMF’s advice, which generally advocates for maintaining real positive interest rates.
However, Argentine officials argue that reducing borrowing costs will enable the central bank to manage its balance sheet more by absorbing excess liquidity. This step is seen as crucial before the lifting of capital controls.
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