October 17, 2016 / 6:52 PM / 2 years ago

Argentina's largest bank lowers rates in bet on falling inflation

BUENOS AIRES, Oct 17 (Reuters) - Argentina’s state-run bank said it lowered its headline interest rates for loans to businesses on Monday amid expectations that inflation will begin to slow in Latin America’s third-largest economy, a move that will help put credit back within firms’ reach.

Banco Nacion, the country’s largest financial institution, set its annual nominal reference rate for business loans at 27 percent, down from 32 percent. The bank said it has also set aside $330 million for loans to small- and medium-sized businesses at a discounted rate of 15 percent.

“We’ve made this decision with the conviction that gradually we will have a substantial improvement in the general economy, with inflation trending lower,” said Carlos Melconian, president of Banco Nacion.

Inflation in Argentina is expected at 39.6 percent for full-year 2016, according to a central bank poll of analysts. That has resulted in high interest rates on loans, making credit unaffordable for many companies.

But that same poll showed a median forecast of 20 percent inflation in 2017, when the economy, currently mired in recession, is expected to return to growth.

The 10-month-old administration of President Mauricio Macri is applying orthodox economic policies following eight years of free-spending populism under the previous leader, Cristina Fernandez.

Macri has eliminated currency controls and grains export taxes, lowered utility subsidies and settled a long-standing lawsuit with bond-holders that had kept the country in default.

But the expected surge in investment has been slower to arrive than thought. (Reporting by Walter Bianchi; Writing by Luc Cohen; Editing by Alan Crosby)

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