Argentina Cuts Interest Rate for Sixth Time to 40% as Inflation Slows

(Bloomberg) -- Argentina cut its benchmark interest rate for a sixth time under President Javier Milei as his government sees inflation edging lower while it shrinks the central bank’s balance sheet.

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The monetary authority lowered its key rate to 40% from 50%, according to a statement published on its website Tuesday. Borrowing costs have now fallen from a high of 133% last December.

Argentina’s monthly inflation has slowed since Milei took office Dec. 10, easing to 8.8% in April from 26% in December. His economic team sees the trend continuing as it forecasts consumer price gains falling to 3.8% by September, according to a presentation seen by Bloomberg News. That’s much lower than the 5.8% rate expected by analysts in a central bank survey. However, annual inflation continued to run hot at 289.4% in April.

In addition to lowering its key rate, the central bank also said in a separate press release Tuesday night that it will intervene at its discretion in the secondary bond market without considering the price spread of 2% set by the current regulation.

On Monday, International Monetary Fund’s staff signed off on the eighth review of Argentina’s $44 billion program. If approved by the IMF’s executive board, that move would give the country some $800 million in breathing room to honor debt repayments to the Washington-based lender.

While Milei’s monetary policy goes against the IMF’s orthodox recommendation for real positive rates, officials expect lower borrowing costs will allow the central bank to clean up its debt-laden balance sheet and absorb excess liquidity as key steps before lifting capital controls.

(Updates with additional detail on bond market intervention in 4th paragraph.)

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