BUENOS AIRES (Reuters) - Argentina’s central bank said on Monday it would set a new lower interest rate floor on its benchmark “Leliq” notes at 58% for the month of July, buoying the peso currency in morning trading.
The new rate floor - while still one of the highest reference interest rates in the world - was lower than the previous minimum of 62.5%. On Friday the notes had been auctioned at a average rate of 62.688%.
The South American nation has had to hike interest rates to stem a slide in the peso currency since last year, though the rate, set by daily auctions of short-term Leliq notes, has been coming down steadily over the past few months.
The central bank’s monetary policy committee also decided to cut by 3 percentage points the reserve requirements for fixed-term deposits, effectively releasing around 45 billion Argentine pesos ($1.07 billion).
The bank added it would reduce the base money target for the August-October period to offset that reduction, and that the “strict control” of money supply would “continue to guide the disinflation process in the coming months.”
July usually sees a peak in demand for local currency in Argentina due to the collection of bonuses and expenses linked to the southern hemisphere winter vacation.
Goldman Sachs said in a note that slowly improving inflation and a less volatile peso had “created room for the central bank to gradually and responsibly ease the monetary stance.”
The peso currency opened 1.0% stronger at 42.09 per U.S. dollar ARS=RASL after the bank announced the lower rate floor.
The central bank also said it had ratified a plan announced earlier this year to keep a static reference trading band for the peso currency in place until the end of the year between 39.755 pesos and 51.448 pesos per U.S. dollar.
(Graphic: Argentina's sky-high rates - tmsnrt.rs/2VbXtnE)
Reporting by Gabriel Burin and Jorge Otaola; writing by Adam Jourdan and Hugh Bronstein; editing by Jonathan Oatis