Argentina Cuts Rates to 50% as Milei Wrestles Inflation Down

(Bloomberg) -- Argentina cut its key interest rate for the third time in three weeks as officials bet on a sustained slowdown in consumer prices and race to shrink the central bank’s interest-bearing liabilities.

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Policymakers lowered the benchmark rate to 50% from 60%, according to a statement released Thursday that cited a significant easing in price pressures over recent months.

Officials have cut rates five times from an initial 133% since President Javier Milei took power in December. Inflation slowed every month since then, from a three-decade-high monthly rate of 26% in December to 11% in March. Milei said over the weekend that April’s reading could be in the single digits, a sign that the government’s efforts to tame runaway price growth are working.

In a separate radio interview Wednesday, the president said he hopes to lift Argentina’s complex currency controls sometime this year. An integral step in that process is cleaning up the central bank’s balance sheet by lowering rates, Milei said, adding he imagined another rate cut would be made.

What Bloomberg Economics Says...

“Argentina’s latest interest-rate cut shows the central bank is moving fast to exploit market momentum and currency controls. Additional cuts are possible in coming months, but a sharply negative rate policy can only last if capital flows stay constrained.”

— Adriana Dupita, deputy chief emerging markets economist

For the full analysis, click here

Since taking office, Milei’s government has lifted price controls, devalued the currency by more than 50% and posted Argentina’s first quarterly budget surplus since 2008. To achieve that, Milei froze nearly all public works and transfers to local governments, and kept spending on pensions and public salaries well below inflation. The lower house approved Milei’s sprawling economic reform bill on Tuesday, which will face a vote in the senate in coming weeks.

The president’s economic team sees monthly inflation slowing much faster this year than analysts anticipate, forecasting consumer price increases will fall to 3.8% by September, according to a presentation seen by Bloomberg News dated April 4 and authored by a top deputy to Economy Minister Luis Caputo. Analysts surveyed by Argentina’s central bank in March foresee monthly inflation at 6.2% by September.

Annual inflation, however, remains eye-popping. From a year earlier, Argentine consumers are grappling with price gains of nearly 288% — the highest level since the crisis-prone nation exited hyperinflation in the early 1990s.

(Updates with context throughout.)

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