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Argentina Monetary Policy March 2024

Argentina: Central Bank delivers sizable rate cut in March

At its 11 March meeting, the Central Bank of Argentina (BCRA) decided to cut the 1-day reverse repo rate to 80.00% from 100.00%. Moreover, the Bank eliminated the minimum fixed-term deposit rate.

These decisions reflect the Central Bank’s commitment to navigating economic normalization, enhancing monetary stability and fostering investor confidence. Following initial price adjustments in December 2023, there has been a significant slowdown in month-on-month inflation, while year-on-year inflation is still affected by sizable statistical carryovers. Retail inflation trends indicate the reduced pass-through effect of exchange rate fluctuations compared to past experience. Meanwhile, addressing fiscal deficit monetization has translated into a reduction in monetary emission in real terms and a consequent improvement in the Central Bank’s balance sheet. A recovery in depleted net reserves was an additional driver behind the decision to cut rates.

The Bank did not give explicit forward guidance in its press release. However, it said it would continue to focus on managing inflation, enhancing monetary stability and fostering confidence through transparent policy measures. Most of our panelists expect the BCRA to cut the one-day reverse repo rate further this year.

Commenting on the outlook, economists at the EIU stated:

“We expect that the BCRA will keep the interest rate negative in real terms in 2024 to shrink the monetary base further. With the monetary base falling to more normal levels, real interest rates will turn positive from 2025, which will support the authorities’ efforts to sustain disinflation. Mr Milei made the closure of the BCRA and the dollarisation of Argentina’s economy a major plank of his proposed free-market reforms, but our forecasts do not incorporate these extreme changes.”

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