Argentina cuts rates by 300bp to 29%

The Central Bank of Argentina (BCRA) has reduced its policy rate by 300 basis points as inflation in the country continues to slow.

The BCRA on January 30 brought its benchmark interest rate down from 32% to 29% – a decision it said was based on lower inflation expectations.

Year-on-year headline inflation fell in December to 117.8%, compared with 166% the previous month. Month-on-month headline inflation rose slightly over the same period to 2.7%, compared with 2.4% in November.

Argentina’s central bank has been lowering its policy rate since Javier Milei became the country’s president in December 2023. Borrowing costs have come down from 126% shortly before Milei took over to their current level.

The rate cut comes as Argentina prepares to slow the devaluation of its currency. The BCRA announced on January 14 that the peso’s monthly devaluation rate, known as the “crawling peg”, would be slowed from 2% to 1% from the start of February.

The crawling peg has caused the peso’s real exchange rate to appreciate. This has prompted the BCRA to sell dollars in the parallel foreign exchange market to prop up the peso’s value, thus putting further pressure on the bank’s already scarce reserves.

However, the Milei government’s austerity measures have made foreign investors increasingly willing to lend to Argentina. This month, the BCRA secured a $1billion repurchase agreement with international lenders to strengthen its reserves.

Argentina is negotiating a new loan agreement with the International Monetary Fund, after the previous $44 billion deal expired at the end of last year. The IMF this month completed an ex-post evaluation of the previous deal, which is a necessary step before any new agreement can be reached.

Kristalina Georgieva, the IMF’s managing director, met with Milei in Washington on January 19 and said the fund was “working towards a new programme”.

“Excellent meeting with [Milei] amid Argentina’s remarkable transformation – deficit wiped out, inflation down, and growth rebounding with strong prospects ahead,” she wrote on social media after the meeting.

The following week, the IMF sent a team of technical staff to Argentina to discuss a new loan deal, according to sources quoted by Reuters.