Argentina's key rate still seen as too high

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Wednesday, November 30, 2016

Argentina's central bank has cut its policy rate by 50 basis points for a fourth straight week to 24.75%, which is reportedly still not low enough for economy minister Alfonso Prat-Gay.

El Economista news outlet cites sources within the economy and public finances ministry as saying that the country's rates are dissuading consumer spending and private sector investments, and that the key rate should be closer to 20%.

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The key rate stood at 38% last May when the central bank started the rate-cutting process.

The ministry sources added that the country's currency should be trading at 17 pesos to the US dollar, instead of the current 15.57, in order to bolster falling exports. They also expect the country to grow 3.5% in 2017 with inflation below 20%.

Inflation for the month of October came in at 2.4%, well above the central bank target of 1.5%.

Despite promises from the administration of President Mauricio Macri that the economy would pick up steam in the second half of this year, indicators show no signs of a recovery. The economic activity indicator for September, released last week, posted a contraction of 3.7% year-on-year, much larger than expected and the seventh consecutive monthly drop.