Argentina’s Central Bank set to hike rates again on price spike

Argentina’s Central Bank is preparing to increase its benchmark Leliq rate again next month as annual inflation rises above 70 percent, according to people with direct knowledge of the matter.

The Central Bank’s board has already decided to tighten borrowing costs further in September, with a hike likely to be as much as 500 basis points, the people said, asking not to be named discussing private conversations. That would make it a smaller increase than the two most recent ones, of 950 basis points and 800 basis points, respectively.

Argentina will release inflation data for August on September 14, and the Central Bank estimates that it will be lower than July monthly level of 7.4 percent, the people said. The final print will likely determine the size of the rate increase. The Central Bank’s board typically meets Thursdays.

The monetary entity sees limited space to keep raising rates, as an aggressive move could slow down economic activity ahead of an election year, the people said. It would also impact the interest payments the Central Bank has to make on its debt, generating an expansive monetary effect, they added.

A Central Bank spokesman declined to comment.

Raising rates closer to annual inflation levels is part of the government’s effort to encourage savers to stick with pesos as reserves run near lows. It’s also a key pillar of Argentina’s US$44-billion agreement with the International Monetary Fund, which calls for so-called positive rates.