The Banco Central de la República Argentina (BCRA) cut its monetary policy rate from 133% to 100% on 18 December 2023 and dismantled the system of LELIQ liquidity notes that had anchored its policy framework, eight days after President Javier Milei took office.
The decision was announced on Monday 18 December and took effect the following day. Alongside the cut in the benchmark annual rate, the central bank lowered the minimum rate that banks must pay on fixed-term deposits to 110% from 133%, reductions of 33 and 23 percentage points respectively.
The cut was the BCRA’s first reduction in its benchmark rate in 2023. The rate had been raised repeatedly during the year, from 75% at the start of 2023 to 97% in May, 118% in August and 133% in October, before the new administration took office.
LELIQ FRAMEWORK DISMANTLED
The BCRA discontinued the 28-day LELIQs (Letras de Liquidez), making one-day repo transactions, known as pases pasivos, its primary instrument for absorbing surplus pesos from the banking system. From 19 December 2023 the overnight reverse repo rate became the central bank’s reference policy rate, replacing the 28-day LELIQ rate that had served that role since January 2022. The stock of LELIQs stood at about AR$3.3 trillion at the time of the change, of which AR$2.2 trillion was due to mature progressively until 11 January 2024.
INFLATION BACKDROP
The rate cut came as inflation was accelerating. Consumer prices rose 160.9% year on year in November 2023, and the new government devalued the peso by 54% earlier in December.
Economy Minister Luis Caputo had previously said that dollarisation and closing the central bank remained objectives of the government’s programme.