Was Argentina's key interest rate cut politically motivated?

Bnamericas Published: Wednesday, May 04, 2016
Was Argentina's key interest rate cut politically motivated?

A slowdown in core inflation is said to be behind the Argentine central bank's Wednesday cut to its benchmark interest rate but there are doubts if this is really the case.

The monetary authority cut the interest rate on the 35-day central bank bonds known as Lebacs to 37.5% from 38%.

"A drop in core inflation in April compared to March," was the explanation given by central bank president Federico Sturzenegger for the rate cut, according to local paper Cronista.

The publication of inflation statistics has been temporarily suspended as the government that came to power in December is seeking to improve the credibility of the statistics that the previous government produced.

Sturzenegger had pledged a tight monetary policy until "clear and persistent signals of an inflation slowdown." But the cut came amid growing pressure for easing the monetary policy, Cronista reported.

"It has taken me by surprise because there are no signs yet that the core inflation the central bank looks at has decelerated," Diego Giacomini, director at Economía & Regiones, was quoted as saying by Cronista. "This makes me think that the monetary authority has received strong pressure from the political wing of the government."

Core inflation does not include temporary price increase such as the steep tariff hikes recently implemented by the government. Overall inflation reached close to 7% in April for the highest month-on-month print since 2002, according to Cronista.

(Pictured: Federico Sturzenegger)

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