(Bloomberg) — Argentina’s central bank said payment intermediaries will have to enable debit card transactions in US currency by Feb. 28, marking a key step in President Javier Milei’s pledge to dollarize the economy.
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The bank also developed a program to allow people to make installed payments in either dollars or pesos. The move aims to “bolster currency competition in order to allow people and businesses to use the currency they wish in their daily transactions,” according to a central bank statement on Thursday.
Separately, the bank decided to keep its interest rate unchanged at 32% on Thursday, frustrating investors’ growing bets on another borrowing cost cut, according to a person with direct knowledge of the matter.
Financial markets had expected a rate reduction after December’s annual inflation slowdown and the central bank’s decision to lower the official currency’s monthly depreciation rate to 1% from 2%.
During his presidential campaign, Milei promised to encourage currency competition in South America’s second largest economy, a plan that was widely known as “dollarization.” The proposal sparked criticism from the opposition because it was seen as impossible amid a shortage of greenbacks. Still, Thursday’s announcement points in the direction of Milei’s pledge.
Argentina still keeps a litany of capital and currency controls in place. Milei has promised to lift those restrictions this year, which could force the central bank to provide more attractive interest rates to stave off a possible currency run.
The International Monetary Fund, which Argentina is hoping will lend it more money to help to lift controls, has long been a proponent of borrowing costs well above inflation.
Government data released on Tuesday showed prices rose 2.7% in December from November, the third straight month below 3% and in line with the median estimate from economists surveyed by Bloomberg. Annual inflation eased to 117.8%, down from a peak of near 300% last year.
The central bank has cut rates eight times since President Javier Milei took office in December 2023, when borrowing costs were 133%. The strategy has become one of the most unorthodox parts of Milei’s strategy to slow inflation.
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