The skyline in Argentina

Argentina Monetary Policy March 2020

Argentina: Central Bank intervenes to palliate economic slump from coronavirus in March

In two subsequent decisions on 19 and 26 March, the Central Bank of Argentina (BCRA) adopted measures to improve the payment chain and to boost credit to SMEs, as part of efforts to ameliorate the economic impact of Covid-19 lockdown measures. However, available evidence suggests the BCRA’s efforts are struggling to translate into an increase in credit.

In March, the Central Bank announced its decision to lower reserve requirements for those commercial banks that granted special credit lines to households and SMEs at a maximum interest rate of 24.0%—well below the key monetary policy rate of 38.0%. The special credit lines should be extended to SMEs principally with the aim of paying workers’ wages. Moreover, the Bank temporarily loosened bank provisioning needs and bank loan classification rules, to further support the flow of credit and thus prevent business closures. However, available data shows that commercial banks are largely placing additional money in Central Bank reserves instead of converting it into loans to businesses. Therefore, the notable increase in monetary base recorded in the last few weeks appears not to be having the desired effects, as the credit channel is damaged also due to a high repayment risk.

Looking ahead, it remains uncertain whether the combination of lower interest rates—on 5 March, the Central Bank set a new lower floor for the LELIQ rate at 38.0%—and looser credit rules will prove effective to alleviating the economic damage inflicted by Covid-19 containment measures or whether they will simply fuel inflation. Lower interest rates and an expanding monetary base could put pressure on the peso and stoke price pressures.

Free sample report

Access essential information in the shortest time possible. FocusEconomics provide hundreds of consensus forecast reports from the most reputable economic research authorities in the world.
Close Left Media Arrows Left Media Circles Right Media Arrows Right Media Circles Arrow Quote Wave Address Email Telephone Man in front of screen with line chart Document with bar chart and magnifying glass Application window with bar chart Target with arrow Line Chart Stopwatch Globe with arrows Document with bar chart in front of screen Bar chart with magnifying glass and dollar sign Lightbulb Document with bookmark Laptop with download icon Calendar Icon Nav Menu Arrow Arrow Right Long Icon Arrow Right Icon Chevron Right Icon Chevron Left Icon Briefcase Icon Linkedin In Icon Full Linkedin Icon Filter Facebook Linkedin Twitter Pinterest