By Walter Bianchi

Buenos Aires (Reuters)

Traders and analysts expect Argentina’s central bank to lower its benchmark interest rate as soon as Thursday, citing sharply falling inflation. Additionally, the bank is expected to slow the monthly devaluation of the local peso currency.

Starting Monday, the devaluation, known as the crawling peg, will slow down to 1% a month from the previous 2%.

The central bank’s board meets every Thursday, and a rate cut could possibly be announced by the afternoon or in the following days, according to analysts.

The bank did not respond to a request for comment.

The current benchmark rate, at 32%, is likely to be cut by around 400 basis points, analysts estimate.

> “A rate cut is coming, and the market is already expecting it,” said analyst Salvador Vitelli.

President Javier Milei, a libertarian economist, has pledged to significantly reduce public spending and has managed to bring down inflation from the double-digit monthly increases seen at the end of 2023.

December’s inflation rate was 2.7%, concluding Milei’s first full year in office with an annual price growth of 117.8%.

With inflation projected to continue declining this year, the central bank announced it would slow the pace of peso devaluation earlier this month.

According to local financial advisory firm Delphos Investment, the central bank would need to cut the interest rate by 1,150 basis points to keep the ‘spread’ between the interest rate and the crawling peg, currently at 0.7%, unchanged. However, they estimate the cut will be around 400 basis points, resulting in a higher spread that would encourage traders to borrow in foreign currency.

Recently, Argentina’s markets have rallied in response to these expectations.

> “The imminent reduction of the crawling peg, the potential rate cut, along with stability in the exchange rate, continues to create a snowball effect favoring investments in pesos,” noted economist Gustavo Ber.