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Argentina central bank cuts key interest rate, expects lower inflation

[BUENOS AIRES] Argentina's central bank cut its 35-day reference rate by 50 basis points on Tuesday, the fifth cut in as many weeks as policymakers sought to pull the economy out of recession amid signs of lower inflation.

The bank cut the rate to 28.25 per cent, a move aimed at pushing cash into the real economy by making short-term central bank notes less attractive to investors. The tactic helps gross domestic product grow but can also be inflationary.

"Indicators and estimates from state and private sources suggest the disinflation process continued throughout August,"the central bank said in a statement.

Inflation was 2.0 per cent in July, down from 3.1 per cent in June and 4.2 per cent in May, when the official Indec statistics agency issued its first consumer price report since President Mauricio Macri took office in December.

Mr Macri ordered a reform of the agency to make Argentina's statistics more credible after his predecessor was accused of sugar coating data.

Argentina's Central Bank President Federico Sturzenegger said on Tuesday that inflation in August should show a"significant deceleration" but that the bank must remain vigilant.

"A persistent disinflation process takes several months to establish itself as such," he said at a conference in Tel Aviv before the rate cut was announced.

Finance Minister Alfonso Prat-Gay said on Monday inflation is expected to be less than 1 per cent in August.

Inflation will likely be 40.2 per cent in 2016, one of the world's highest rates, and 19.4 per cent in 2017, according to a recent central bank poll of analysts.

Gross domestic product is expected to shrink 1.3 per cent in 2016 before snapping back to 3.2 per cent growth in 2017, according to the poll.