Argentina’s central bank reduces interest rate to 70%

Buenos Aires. The central bank of Argentina (BCRA) lowered the financial reference rate this Thursday to 70 percent annually, from the previous 80 percent in force since March, given signs of a reduction in macroeconomic uncertainty in the southern country and consolidation of the markets.

The third economy in Latin America registers the highest inflation rate in the world after recording an increase of around 275 percent annually in February.

The decrease in the cost of credit occurs in response to the evolution of the economic situation and financial liquidity conditions, a measure announced this week to Reuters by a source from the entity.

“After the initial correction of relative prices in December 2023, a pronounced slowdown in inflation is observed, despite the strong statistical drag that inflation carries in its monthly averages,” the BCRA reported in a statement.

Since December 10, with the arrival of the new government of Javier Milei, “the monetary base and the broad monetary base – including liabilities remunerated in pesos – have been reduced at a rate of 10.5 and 5.8 percent average per month, respectively, in real terms,” the bank indicated.

Last December it started with a reference rate of 133 percent and was abruptly reduced with the arrival of the new executive management to one hundred percent.

Thanks to a strict and unusual fiscal policy, the mood of investors in Argentina has dramatically improved with a solid recovery of BCRA reserves, although poverty levels are increasing along with a notorious recession that contributes to a constant fall in inflation.

Despite the ruling party’s legislative minority, Milei seeks for Congress to approve a base law to massively deregulate the economy.

Along with the rate cut, the BCRA board ordered the deactivation of the ‘swap’ with the Bank for International Settlements (BIS), the normalization of liquidity management through reserve requirements and a more flexible access to the ‘Free Exchange Market’ (MLC) for micro, small and medium-sized enterprises (MSMEs).