The Central Bank recently made another reduction in interest rates, which is now at 50% annually. The decision to lower the cost of living, expected to drop to 5% in May, has been widely praised by some. However, there are concerns that this move is also aimed at “liquefying” the Central Bank’s debt and lifting the exchange rate that currently limits the purchase of dollars.
Despite the negative impact of inflation, this reduction in interest rates has not had a significant effect on free dollars. This is due in part to the validity of stocks and exporters settling a portion of their earnings in cash with different settlement rates. 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 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 Argentina continues to navigate complex economic issues. The government’s strategy to protect the exchange rate and manage debt payments will be closely watched by analysts and investors as they navigate these uncertain times ahead.
