Argentina's rate cuts benefit businesses, not families, amid high default rates

Argentina's central bank has successfully driven down interest rates, a move that has translated into more affordable credit for businesses. However, this benefit has yet to reach households, as rates for personal loans and credit cards remain stubbornly high. While companies are enjoying significantly reduced costs for commercial credit, families are finding little relief in their borrowing expenses.

Financial sector sources attribute this disparity to persistently high default rates among families. Banks have reduced their funding costs, with the reference rate falling from 35% in January to around 20% in July, and fixed-term deposit yields following suit. In contrast, the cost of personal loans for households has barely budged, dropping from 68% in January to 67% by mid-July. This minimal compression is insufficient to signify cheaper credit for consumption.

The government's objective of stimulating consumption through lower borrowing costs has been hampered by this gap. The intended effect of increased banking liquidity translating into cheaper credit for consumers has been undermined by the elevated risk associated with household debt. While corporate default rates stand at 3.5%, family delinquency climbed to 12.8% in May, with personal loans reaching 15.9%. This situation has led banks to tighten lending criteria rather than compensate for risk with higher rates.

Consequently, the outcome is the inverse of what the government had hoped for. Depositors receive less on their fixed-term deposits, but this reduction is not reflected in the cost of financing for consumption. As credit for businesses becomes cheaper, financing through credit cards or personal loans remains nearly as expensive as at the beginning of the year. Bankers note that while the situation stabilizes, banks will eventually lend more, but the problem of family loan defaults, lingering since 2025, makes it difficult for the private sector to significantly increase lending for consumption in the short term.