The Central Bank of Argentina recently announced another reduction in the interest rate, which is now set at 50% annually. This decision was made with the goal of lowering the cost of living, which is expected to drop to 5% in May. However, some believe that the rate cut is also aimed at “liquefying” the Central Bank’s debt as part of a strategy to lift the exchange rate that currently limits the purchase of dollars.
Despite inflation’s negative impact, this reduction in the interest rate has not had a significant effect on free dollars due to various factors such as stock validity and different settlement rates exporters use. The decrease in interest rates for fixed-term deposits has led them to be around 37-40% annually.
The Central Bank’s decision to lower interest rates is tied to reducing debt payments on its monetary liabilities, which amount to approximately $34 billion. By “liquefying” savers in pesos, the bank aims to offset its liabilities and limit monetary emission. This has left savers struggling as they lose money in real terms due to low interest rates and limited deposit options.
On an international level, Argentine officials are currently negotiating with China on how to pay off a $5 billion debt that will be due at the end of June. This debt is part of a larger swap arrangement that former officials had secured earlier. Paying off this debt would require a considerable portion of the reserves held by the Central Bank, which has already paid off debts owed to IMF earlier this year.
The outlook for both interest rates and international debts remains uncertain as Argentina continues to face economic volatility. The government’s efforts to protect their exchange rate and manage debt payments are closely watched by analysts and investors alike. The coming months will likely bring more negotiations and challenges for Argentina as they navigate these complex economic issues while trying not only keep up with inflation but also paying off their debts.
Overall, while some may see this move by Central Bank as positive step towards stabilizing economy, it also poses challenges for savers who are losing money in real terms due to low-interest rates and limited deposit options while keeping up with inflation rates and paying off international debts obligations at high costs