July 1, 2019 / 2:07 PM / 15 days ago

Argentine central bank lowers interest rate floor, peso rises

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.

FILE PHOTO: Argentina's Central Bank facade, in Buenos Aires, Argentina March 26, 2019. REUTERS/Agustin Marcarian/File Photo

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

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