“Starting from tomorrow, the bank’s monetary policy interest rate will become the rate for one-day reverse repos, a rate that since Dec. 13 has been established at 100%,” the bank said in a statement.
The move, days after libertarian President Javier Milei took office as South America’s No. 2 economy battles inflation nearing 200%, aims to clarify monetary policy decisions but analysts said it could push up the cost of U.S. dollars.
Fund Corp economist Roberto Geretto said the measures would push banks and savers toward treasury bills with an aim to indirectly cut the fiscal deficit, but could push up the cost of dollars in parallel foreign exchange markets.
Invenomica director Pablo Besmedrisnik added that if successful, the move could cut public debt and lead to more breathing space to gradually redirect loans to companies.
“There will be incentives to redirect funds towards dollarized assets, putting pressure on their prices,” Besmedrisnik said. “We will have to wait for the reaction.”
“It’s a strong bet,” said Maria Castiglioni, director at C&T Asesores Economicos. “The bet only works if the government achieves a financial fiscal balance so it does not have to keep placing debt, or this scenario will be very hard to manage.”
The central bank, under the new presidency of Santiago Bausili, added that it considered it “prudent” to maintain a minimum 110% interest rate for fixed-term deposits.
In terms of liquidity injections, the bank said it would continue to carry out certain operations on Treasury instruments which the bank considers appropriate.
Milei’s campaign pledges include dollarizing the economy and eventually shutting down the central bank.
Source: Economy - investing.com
