By Walter Bianchi
BUENOS AIRES (Reuters) – Traders and analysts expect Argentina’s central bank to lower its benchmark interest rate as soon as Thursday, as inflation falls sharply and as the bank is set to slow the monthly pace of devaluation of the local peso currency.
Starting Monday, the devaluation, known as the crawling peg, will slow down to 1% a month from 2% a month previously.
The central bank’s board meets every Thursday, and a rate cut could come by the afternoon or in the following days, analysts told Reuters.
The bank did not respond to a request for comment.
The benchmark rate, currently at 32%, will likely be cut by around 400 basis points, the analysts estimated.
“A rate cut is coming, and the market is already expecting it,” analyst Salvador Vitelli said.
President Javier Milei, a libertarian economist who has vowed to take a “chainsaw” to public spending, has brought inflation down from the eye-popping double-digit increases recorded each month when he took over at the end of 2023.
December’s monthly inflation rate came in at 2.7%, with South America’s second-largest economy ending Milei’s first full year in office with annual price growth of 117.8%.
With inflation expected to continue its slowdown this year, the central bank announced earlier this month it would slow the pace of peso devaluation.
“The central bank would need to cut the interest rate 1,150 basis points to keep the ‘spread’ between the rate and the crawling peg – currently at 0.7% – unchanged,” local financial advisory firm Delphos Investment said in a note.
“However, we estimate that the cut will be around 400 basis points, which would leave a higher spread and further encourage traders to borrow in foreign currency.”
Markets in Argentina have rallied in recent days on the strength of their expectations.
“The imminent reduction of the crawling peg, the potential rate cut, along with calm in the exchange rate, continues to create a snowball effect in favor of placements in pesos,” economist Gustavo Ber said.
(Reporting by Walter Bianchi; Writing by Kylie Madry; Editing by Hugh Lawson)
