Argentina cuts rates again as inflation crests near 300%

By Jorge Otaola and Walter Bianchi

BUENOS AIRES (Reuters) -Argentina's central bank cut the benchmark interest rate on Tuesday after inflation slowed for the fourth straight month and the annual rate crested just shy of 300% amid a tough austerity drive by libertarian President Javier Milei.

The central bank said in a statement it had cut the overnight rate to 40% from 50% previously, the fifth major cut since brash economist Milei took office in December when the central bank changed the benchmark instrument.

The move came after the embattled South American country posted a monthly consumer price rise of 8.8%, still sky-high but down for the fourth straight month since a peak over 25% in December. It was also slightly below forecasts of a 9% rise.

Inflation in the 12 months through April landed at 289.4%, only slightly higher than the annualized rate a month earlier, the official INDEC statistics agency said.

Shopkeepers and consumers, however, said that although monthly inflation readings have slowed, the change has yet to be fully felt on the ground.

"No matter how much the inflation rate goes down, which is what everyone says, it is not reflected here because look, there are items that should have gone down but haven't," said Sandra Boluch, 50, a fruit and vegetable seller in Buenos Aires.

She said her store had been forced to raise workers' salaries because their rents had increased, while input costs of things like plastic bags had gone up, all feeding back into the sticker price for carrots and apples.

"These (prices) increase a lot and then that's reflected elsewhere. Where? In the merchandise," she said. "Transportation is more expensive, diesel prices go up, everything goes up. So no matter how much we try to reduce prices, we can't."

The government of Milei, which inherited a major economic crisis, has touted its success lowering monthly inflation, which has dropped this year since a December peak after he took office and sharply devalued the local peso currency.

"Inflation is being pulverized," presidential spokesman Manuel Adorni wrote on X after the April data was released.

Argentine money market traders had told Reuters earlier on Tuesday that another large rate cut was likely soon.

'AUSTERITY SHOCK'

Milei has pushed a tough austerity campaign with cost-cutting and looked to soak up liquidity in the market, which has gone down well with investors, and has helped boost the government's fiscal position and propelled a rally of equities and bonds.

"He generated a monetary austerity shock, stopped injecting pesos into the economy, and gave a strong signal of fiscal austerity," said Eugenio Mari, chief economist at consultancy Libertad and Progreso Foundation.

That economic medicine has also hit salaries and economic activity hard, though Mari said things should get better.

"A sharp drop in real wages implies a drop in aggregate demand, a drop in consumption and, obviously, a drop in economic activity. But the interesting thing is that now, with the drop in inflation, the door is open for real wages to recover."

Ofelia D'Aquino, 65, a retiree in Buenos Aires leaving a supermarket, said he didn't yet feel the inflation slowdown. Retirees, along with public sector workers, have taken the biggest hit from Milei's austerity.

"Prices are still expensive and we Argentines have very little purchasing power," he said.

"We hope that this great crisis, that our sacrifice, serve some good and we get out of this. We deserve it, all of us and the generations to come."

(Reporting Miguel Lo Bianco and Juan Bustamante; Writing by Nicolás Misculin; Editing by Leslie Adler and Sandra Maler)