(Bloomberg) -- Argentina’s central bank unexpectedly cut its benchmark interest rate to 80% from 100% as policymakers see monthly inflation cooling while the peso continues to strengthen against the US dollar in parallel markets. 

Despite annual inflation over 250%, the monetary authority cited a range of factors in explaining the cut late Monday night, including its steady rebuilding of reserves.

Argentina’s statistics agency is due to publish February inflation figures on Tuesday. Economists surveyed by Bloomberg expect consumer price gains will come in at 15% on the month, continuing to cool from 21% in January and 26% in December. On a yearly basis, however, inflation is likely to accelerate past 280%. 

The policy change also comes as the government is in the midst of a record peso debt swap, attempting to exchange as much as 55 trillion ($65 billion) of Treasury notes due this year for ones maturing between 2025 to 2028. 

Read More: Argentina Seeks Breathing Room With Peso Swap Worth $65 Billion

The dovish policy move contrasts with February guidance from the International Monetary Fund in its most recent review of Argentina’s $44 billion program, where staff wrote “going forward, the authorities agreed that the monetary policy stance would need to be tightened to support money demand and disinflation.” More broadly, IMF officials have long insisted Argentina keep interest rates above inflation to incentivize savings in pesos and cool prices.

Following a similar rate cut in December, along with a 54% currency devaluation, many Argentines got out of 30-day peso deposits, transferring the money to their bank accounts to spend or dollarize. 

Monetary authorities in Buenos Aires noted Monday that while rates are coming down, the amount of money in circulation — or the monetary base — has declined 17% in inflation-adjusted terms since Milei took office. Keeping a tight grip on the monetary base has helped cool prices on a monthly basis so far. 

While monthly inflation continues to cool and the parallel exchange rate strengthens, the trade off is a steep recession this year. Milei’s austerity measures wiped out social security spending and wages adjusted for inflation, or real wages, which are at their lowest level since 2003. 

--With assistance from Robert Jameson.

(Updates to add monthly inflation chart)

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