(Bloomberg) -- 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% from 40%, according to a press release sent via text message. The decision is based on the country’s liquidity context, the lowering of consumer price expectations and the government’s fiscal anchor, the bank said. Argentina also reduced rates for notes known locally as pases to 40% from 45%.
The country’s sovereign bonds led gains in emerging markets following the news, with notes due 2030 and 2029 each climbing at least 0.5 cents on the dollar Friday morning.
Under Milei, monthly inflation has slowed to 3.5% in September from 25.5% in December, marking the backbone of his political success. October figures, due Nov. 12, are expected to decline 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% for a sixth time, from an initial 133%.
What Bloomberg Economics Says...
“The move won’t help the country’s standing as it seeks a new deal with the IMF, and doesn’t make it easier for President Javier Milei to lift currency controls — indicating neither is imminent.”
— Adriana Dupita, deputy chief emerging markets economist
For the full analysis, click here
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 fueling annual inflation.
Positive real rates and a more flexible currency regime have long been requirements by the International Monetary Fund, to which Argentina owes $44 billion. The country has been looking into starting a new program 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.
--With assistance from Kevin Simauchi.
(Updates with Bloomberg Economics reaction.)
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