The Central Bank recently announced another reduction in the interest rate, bringing it down to 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.
Despite inflation and the negative impact on free dollars, this reduction in interest rates has not had a significant effect on savers. 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.
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 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 with China over paying off a $5 billion debt at the end of June. This debt is part of a larger swap arrangement that former officials secured with China years ago. Paying off this debt would require a significant portion of the reserves held by the Central Bank and may strain its ability to manage other debts and meet its financial obligations.
The outlook for both interest rates and international debts remains uncertain as Argentina continues to navigate volatile economic landscape. The Central Bank’s strategy is being closely watched by analysts and investors who continue to monitor its efforts towards protecting exchange rate stability and managing debt payments amidst these complex economic issues.