The board of Argentina’s Central Bank lowered the benchmark annual interest rate from 40% to 35% on Friday. The monetary authority also decreased the rate for repo transactions from 45% to 40%.

The Central Bank’s communiqué said the decision was based on the institution’s liquidity, the drop in inflation expectations, and the strengthening of the fiscal adjustment.

The monthly interest rate for fixed-term deposits was 3.3% and Friday’s decision put it at 2.9%. The relatively high interest rate, when compared with the 2% monthly devaluation of the Argentine peso compared to the U.S. dollar, allowed investors to do carry trade operations. That involves using U.S. dollars to buy peso-denominated bonds and buying back more dollars with the profit once the bonds mature.

Some analysts say the exchange rate stabilization in recent weeks is related to the carry trade operations and the inflow of U.S. dollars through the tax amnesty, which was extended recently. In the last month, the blue-chip swap rate ticked down from AR$1,246 to AR$1,178 and the MEP rate fell from AR$1,220 to AR$1,143.

Pablo Repetto, head of research at the broker Aurum, told the Herald that the monthly interest rate was very high “in comparison with the devaluation rate not only of the official rate but also because of [the government’s] control over the financial exchange rate markets.”

Repetto questioned the sustainability of the strategy, saying that it has a fiscal cost because it increases debt in pesos. Consultancies’ forecasts that inflation will fall are also likely to have influenced the decision, he added.  “Otherwise the real rate would have been very positive,” he said.

Economist Gustavo Ber does not believe the rate cut will affect the exchange rate stability, but said it could mean a “short-term respite in the decline” of the financial and blue dollar exchange rates.

“However, as long as the positive signals on disinflation continue, as well as the progress in the macroeconomic order strategy, that would be only ephemeral, since the gradual decline in such rates would soon resume,” he added.

Conversely, Gustavo Quintana, an analyst and broker for PR Corredores de Cambio, said that the financial exchange rates could “probably correct upwards somewhat in search of a new balance point.” However, he said he did not believe that it would greatly harm the appetite for carry trade, as Lecaps and Boncaps are still attractive to investors.