(Bloomberg) -- Argentina’s new central bank president pledged to further cut interest rates to boost a free-falling economy while fighting inflation through a “social pact” that would encourage companies to raise production rather than prices.
Miguel Pesce said he expects the key rate floor to fall again in January after two cuts last month. At 55%, the benchmark rate is still the world’s highest, although considerably lower than the September peak of 85% recorded under his predecessor. Annual inflation in Argentina hovers above 50%.
“We will definitely continue with the descending rate path,” Pesce said in his first interview with foreign press. “High rates didn’t have the effect of slowing inflation and they were creating a sharp recessionary effect.”
Pesce, 57, was appointed last month by President Alberto Fernandez as the 62nd president of Argentina’s central bank -- a high-turnover position for an institution founded almost 85 years ago. In Argentina, the bank isn’t legally independent from the executive branch and the president is effectively allowed to appoint or fire its head at will.
The problem in Argentina, he said, is “inflation inertia,” which means prices and salaries have increases based on past inflation. Key to break that cycle is a yet-to-be formalized social pact between businesses and labor unions to rein in consumer prices.
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The government announced Tuesday that it was extending a program that caps prices on staple food items and has given fixed-rate increases to pensioners and government workers. Pesce expects those actions to immediately bring down inflation.
No Forecasts
Yet he declined to provide forecasts for inflation or any other key economic variable, including growth, fiscal targets and net foreign reserves.
“I’m not going to make inflation forecasts, but it will be lower than in 2019,” Pesce said. He plans to build the central bank’s credibility “with results,” and noted “I think forecasts have deteriorated the central bank’s credibility recently.”
He also didn’t commit to keeping positive real interest rates -- or rates minus inflation -- to encourage savings in pesos, although he expressed optimism that they’d be possible.
Pesce served as central bank vice president for over a decade until 2015, working under four central bank presidents during the presidencies of the late Nestor Kirchner and his wife Cristina Fernandez de Kirchner. Before being appointed by Fernandez to one of the most volatile position among developing nations, he was president of Tierra del Fuego province bank, in the south of Argentina.