Traders and analysts anticipate that Argentina's central bank will decrease its benchmark interest rate by around 400 basis points given the notable decrease in inflation and the decision to reduce the monthly devaluation rate of the peso. The devaluation rate will be halved starting Monday, slowing down to 1% monthly from the prior 2%. The central bank's board convenes weekly on Thursdays, with a potential rate cut expected imminently, according to analysts interviewed by Reuters. While a request for comment to the bank remained unanswered, analysts like Salvador Vitelli expressed confidence in an upcoming rate cut, stating, A rate cut is coming, and the market is already expecting it.
Under President Javier Milei's leadership, characterized by a commitment to reducing public spending, Argentina has seen a decline in inflation from the previously concerning double-digit monthly increases. The most recent monthly inflation data for December recorded a 2.7% increase, culminating in an annual price growth of 117.8%. The central bank disclosed earlier this month its intention to moderate the pace of peso devaluation for this year. Notably, local financial advisory firm Delphos Investment noted, The central bank would need to cut the interest rate 1,150 basis points to keep the 'spread' between the rate and the crawling peg - currently at 0.7% - unchanged. However, the expected cut is estimated to be around 400 basis points, potentially widening the spread and fostering increased borrowing in foreign currency.
Market sentiment has reflected this anticipated shift, with economist Gustavo Ber highlighting, The imminent reduction of the crawling peg, the potential rate cut, along with calm in the exchange rate, continues to create a snowball effect in favor of placements in pesos.