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ARGENTINA: BCRA Cuts Benchmark Rate Further to 32%

ARGENTINA
BulletEM BulletEmerging Market News
  • Argentina’s central bank decided on Thursday to cut the key leliq rate by 300bps to 32%. This takes the number of benchmark rate reductions to eight within Javier Milei’s term, from its peak of 133% in October 2023.
  • The decision promptly followed the BCRA publishing a market expectations survey which showed a lower median analyst forecast for inflation this year. On average, a year-end CPI rate of 118.8% is expected, compared to 120% in the prior survey. Indeed, the central bank said it based its decision on "the observed consolidation of expectations for a lower inflation rate."
  • Goldman Sachs note the decision comes as pressure from the parallel exchange rate market has eased significantly. GS believe recent policy announcements suggest that the tight capital controls that persist in the economy will remain over the next few months. In their view, the policy stance remains loose and tighter mon pol is likely needed to support a more flexible exchange rate regime. On the other hand, GS say the decision to lower the policy rate should be supportive of the credit boom observed in recent months and provide support to the economic recovery.
  • One economist at Buenos Aires-based CEPEC said “we believe the next step will be to slow the crawling peg, with the intention of making it a stronger anchor for the disinflation path.”
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  • Argentina’s central bank decided on Thursday to cut the key leliq rate by 300bps to 32%. This takes the number of benchmark rate reductions to eight within Javier Milei’s term, from its peak of 133% in October 2023.
  • The decision promptly followed the BCRA publishing a market expectations survey which showed a lower median analyst forecast for inflation this year. On average, a year-end CPI rate of 118.8% is expected, compared to 120% in the prior survey. Indeed, the central bank said it based its decision on "the observed consolidation of expectations for a lower inflation rate."
  • Goldman Sachs note the decision comes as pressure from the parallel exchange rate market has eased significantly. GS believe recent policy announcements suggest that the tight capital controls that persist in the economy will remain over the next few months. In their view, the policy stance remains loose and tighter mon pol is likely needed to support a more flexible exchange rate regime. On the other hand, GS say the decision to lower the policy rate should be supportive of the credit boom observed in recent months and provide support to the economic recovery.
  • One economist at Buenos Aires-based CEPEC said “we believe the next step will be to slow the crawling peg, with the intention of making it a stronger anchor for the disinflation path.”