Argentina market analysts see chance of another rate cut
2024.05.29 14:04
BUENOS AIRES (Reuters) – Argentine analysts expect the country’s central bank to again cut its benchmark interest rate following a bond tender set for Wednesday that is worth billions of dollars and signs that sky-high inflation could slow again this month.
Analysts expect a 10-percentage-point cut that would bring the rate down to 30% from the current 40%. If realized, it would mark the seventh rate cut since libertarian President Javier Milei took office last December, when it stood at 133%.
WHY IT IS IMPORTANT
Argentina is battling its worst economic crisis in decades with annualized inflation hovering near 300% – the highest in the world – and over half its population in poverty, while the new government pushes a harsh austerity drive.
As part of its bid to shore up liquidity, Argentina’s treasury is expected later on Wednesday to tender three so-called “Lecaps” bonds for up to 3.5 trillion pesos ($3.92 billion).
KEY QUOTES
“I think a rate cut could happen after the accelerated transfer of liabilities to Lecaps,” said Gustavo Ber, an independent economist. “It would be an additional incentive to ensure interest-bearing liabilities quickly disappear, as part of the central bank’s strategy to clean up its balance sheet.”
Romano Group analyst Salvador Vitelli predicted the benchmark rate would stabilize around 30%, though Adcap’s Sebastian Azumendi warned a cut would be “a bit risky.” “It is good for lowering monetary liabilities, but at the same time they are left defenseless in the event of a run on the dollar,” he said.
