Argentina Not Finished Chopping Rates After Five-Month Spree

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  • Central bank has cut a key rate by almost 10 percentage points
  • Real rate has climbed in the same period to 6.1% from 4.1%

The plunge in Argentina’s key interest rate may be far from over.

The nation’s central bank has slashed the yield on the 35-day notes it sells at weekly auctions to 28.75 percent from 38 percent in April. Despite the drop, Argentina’s so-called real rate, which adjusts for inflation, actually has spiked to 6.1 percent from 4.1 percent in June, according to consultant Estudio Bein & Asociados.

That jump suggests the central bank can cut further to revive an economy mired in recession without giving up the battle to contain inflation, said Martin Vauthier, an economist at the Torcuato Di Tella University. Federico Sturzenegger, president of the central bank, has said monthly inflation in South America’s second-biggest economy will slow to 1.5 percent by year-end from 4.2 percent in May.

“Real interest rates have risen considerably since the end of June,” Vauthier said in an e-mail. “That implies they have room to reduce rates.”

Argentina’s peso weakened for a third day Thursday, slipping 0.2 percent to 14.883 per dollar as of 12:57 p.m. in New York.