I am by no means a macroeconomist, but I had thought there was a general consensus that lowering interest rates made money cheaper, thereby increasing demand (borrowing, spending, investing), thereby fueling demand-pull inflation. Argentina’s finance minister, however, does not see it this way. He’s proposing that using the government’s reserves to lower interest rates will decrease inflation.
I imagine what Amado Boudou is proposing is that Argentina’s current risk is one of cost-push inflation: That is, the supply of goods on the market is so low in relation to demand that their cost is rising (think the 1970s energy crisis) and taking inflation along with it. So by lowering interest rates, you encourage investment, increase production, increase supply to meet demand, and inflation declines.
Except, the current global economic crisis is one of plummeting demand. No one in their right mind would argue that the real problem with the world’s economy is that everyone wants to buy stuff and there’s just not enough of it. Everyone from China to the United States to the EU has taken measures to increase demand, interest rate cuts among them.
If Argentina uses its reserves to cut interest rates, it will help fuel demand, which might be desirable in this economic climate. But let’s be clear: It would also almost definitely increase inflation, which is already estimated by independent sources to be in the high double digits.