Central bank to maintain interest rates after December inflation figures showed no surprises

The decision means that the annual nominal interest rate will remain at 75%, and the effective rate at 107.5%. They have been stable since September 2022.

The board of the Central Bank will not adjust interest rates following statistics institute INDEC’s announcement yesterday that inflation was 5.1% for December, just 0.2% over the previous month figure.

Since September 15, the Central Bank has kept the annual nominal interest rate at 75% and a 107.5% yearly effective rate. The effective monthly rate is 6.16%.

In a press release, the Central Bank wrote that “keeping the reference rate unaltered will contribute to the gradual deceleration of inflation in the medium term, consolidating financial and exchange stability.”

Sources in the economic cabinet told the Buenos Aires Herald that the rates should remain at that level for as long as possible. However, they do not rule out potential political pressures to lower them.

If inflation decelerates to 4%, as Economy Minister Sergio Massa aims, a monthly 6.16% interest rate would give a positive return in real terms, making peso investments more attractive. In the government’s view, this would also deter flight to the US dollar and relieve pressure on the exchange rate. Since inflation is linked to the exchange rate, this could be significant.

Among its objectives for 2023, the Central Bank ratified its goal to reduce the yearly inflation rate and “build a process that re-establishes trust in the local currency as a store of value”. The monetary authority will keep using the interest rate to that end.

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