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ECONOMY | 06-03-2020 08:00

Central Bank cuts interest rate to 38%

In its statement, the Central Bank’s committee said cooling prices justified the rate cut but that the economy wasn’t in the clear yet.

The Central Bank has cut its benchmark interest rate for the eighth time in three months as officials rush to stimulate a weak economy amid expectations that inflation is slowing.

Policy makers reduced the rate to 38 percent from 40 percent on Thursday, according to a statement. Borrowing costs have tumbled since Central Bank chief Miguel Pesce took over with President Alberto Fernández’s new government on Dec. 10, when the rate stood at 63%.

In its statement, the Central Bank’s committee said cooling prices justified the rate cut but that the economy wasn’t in the clear yet.

“Although there’s an incipient improvement in various activity indicators, there still isn’t firm evidence of an exit from the recessionary phase,” according to the statement.

Policy makers are easing as the region's second-largest economy is poised to contract for the third straight year. The rate cut was fuelled by expectations at the central bank that monthly inflation slid below two percent in February for the first time in two years, according to a person with direct knowledge. Price freezes on public transportation, utilities and some food items, along with capital controls on the peso, are holding down cost of living increases.

Still, with annual inflation at 53 percent, Argentines have little incentive to keep cash in the bank with prices rising much faster than savings rates.

Investors have criticised Argentina for a lack of an economic plan and long-term monetary policy. The current price measures are temporary, and Fernández’s government hasn’t outlined how it’ll adjust the costs of goods and services going forward.

For its part, the bank said last month it won’t present its own broader monetary policy framework until the government puts forward an annual budget. Previous leadership at the bank had hiked rates as high as 84 percent to fight inflation.

The INDEC national statistics bureau will publish the official February consumer price data March 12.

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by Patrick Gillespie, Bloomberg

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