The Central Bank recently announced another reduction in the interest rate, which is now at 50% annually. This decision was made in an effort to lower 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.
Exporters settle a portion of their earnings in cash with settlement at different rates, which increases the supply of free dollars. This has led to a decrease in interest rates for fixed term deposits, which are now around 37-40% annually. Despite the negative impact of inflation, the reduction in the interest rate has not had a significant effect on free dollars due to validity of stocks and high supply of free dollars from exporters.
The Central Bank’s decision to lower interest rates is also 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 in a tough spot, as they are losing money in real terms due to low interest rates and limited deposit options.
On the international front, Argentine officials are negotiating to pay off a $5 billion debt to China at the end of June. This debt is part of a larger swap arrangement that former officials had secured in the past. Paying off this debt would require a significant portion of the reserves held by the Central Bank, which has already paid off debts to the IMF. The outlook for both interest rates and international debts remains uncertain as economic landscape continues to be volatile and analysts closely watch government’s strategy for managing them.
In conclusion, while Central Bank’s recent decision may have lowered costs for consumers and businesses but it leaves savers struggling with low returns on their investments and limited deposit options as well as paying off huge debts internationally would require more negotiations and challenges ahead for government as they navigate these complex economic issues.