Argentina tames inflation, raising interest rates the most since 2019

BCRA will continue to monitor price evolution, financial and foreign exchange market dynamics, and monetary aggregates to calibrate its interest rate policy,

Buenos Aires ( – Argentina’s central bank raised its benchmark interest rate by 10 percentage points to 91 percent on Thursday, as it tries to tame high inflation and stabilize the peso, which has been tumbling in market trading. dark for the past week.

The increase, the biggest since the market crash in August 2019, came after the central bank (BCRA) had raised interest rates last week by 300 basis points to 81 percent in a bid to control inflation which is running at 104 percent annually.

The central bank confirmed the increase in a statement after Reuters previously reported on the move, citing a bank source.

Also read: Argentina’s central bank raised interest rates by 300 basis points to 81 percent

News of a sharp hike in interest rates lifted the black market peso, which strengthened 1.5 percent to 462/467 per dollar on Thursday (27/4/2023), although it was still more than 100 percent from the official exchange rate of 222 per dollar.

Higher interest rates offer savers more incentive to keep their funds in pesos, strengthening the local currency, but weighing on lending and economic growth.

In a statement the bank said it had raised its benchmark interest rate to switch to “real returns on investment in local currency” and to increase savings in pesos. The 91 percent interest rate will apply to 30-day deposits of up to 30 million pesos.

“BCRA will continue to monitor price evolution, dynamics of financial and foreign exchange markets, and monetary aggregates to calibrate its interest rate policy,” he said.

Also read: US GDP shows slower first quarter economic growth

Analysts have welcomed the move, although warning that it is just a bandage for Argentina’s many economic woes.

The main global grain and beef supplier is battling inflation which hit 104 percent in March, with analysts expecting prices to rise this year by around 110 percent to 130 percent. The peso currency is also rapidly losing value against the dollar.

“The interest rate hike is a promising step, but too late,” said Sergio Chouza of consultancy Sarandi.

Analyst Leonardo Chialva said the move would be a “patch” that could calm markets for now but would not fix the root of the problem, especially with the government pressing to spend ahead of general elections in October.

“The underlying problem is a fiscal one, and the medicine needed is difficult to come by in an election year,” said Chialva.

The South American country has a $44 billion lending program with the International Monetary Fund (IMF), which includes targets to have positive real interest rates, control inflation and build up its meager foreign currency reserves.

Translator: Apep Suhendar
Editor: Nusarina Yuliastuti


Source link