Argentina's central bank cut short-term reference rates to 20% this month, below inflation levels, to capitalize on dollar inflows and rebuild hard currency reserves. President Javier Milei's government aims to boost economic growth amid slowdown signals. Analysts note concerns over peso stability impacts.
Argentina's short-term reference rates dropped to 20% this month from 50% at year-end and over 100% in October. Driven by the central bank buying millions of dollars daily and injecting pesos into the financial system, the cuts place rates below inflation, which stood at 31% annually last month after peaking near 300% in 2024. Net reserves rose 9% this year to US$44.7 billion despite a slight monthly dip, fueled by exports and a peso that appreciated nearly 7% since October elections. The central bank purchased about US$2.8 billion since January. Central bank president Santiago Bausili stated: “We will buy reserves as long as people demand pesos.” The move shows President Javier Milei's willingness to prioritize growth amid rising unemployment and slowdowns in industrial production and construction. An Isonomia Consultores survey found unemployment surpassing inflation as Argentines' top concern. María Minatta of Map Latam said: “Economic activity is now at the top of people's concerns,” with the government aiming to “normalize monetary policy, set a reasonable interest rate, and reduce peso reserve requirements so the economy can recover.” Yet, falling rates diminish incentives to hold pesos, potentially weakening the currency and reigniting inflation. Gabriel Caamaño of Outlier highlighted rising risks for carry trade strategies due to global dollar appreciation and rapid peso rate declines.
