Argentina's Central Bank increased its benchmark interest rate by 300 basis points, a person familiar with the decision said, after annual inflation soared and foreign currency reserves slumped.
The rate was raised to 81 percent, said the person who asked not to be identified discussing policy. The Central Bank had told traders that it was offering its Leliq note at a rate of the same magnitude, according to two people with direct knowledge of the matter. The people asked not to be named discussing the institution's monetary policy.
Reuters had earlier reported policymakers were set to raise rates. A Central Bank spokesman declined to comment.
Argentina also posted a US$1.1-billion trade deficit in March, the widest in nearly five years. Agriculture exports fell 34 percent from a year ago, according to new government data. The Buenos Aires Grain Exchange slashed its soy production estimate Thursday to 22.5 million metric tons, down from 25 million previously as a record drought has destroyed much of the essential crop.
Argentina’s markets have taken a beating in recent days after inflation surged to 104 percent in March and uncertainty swirled over the nation’s reworking of its US$44-billion programme with the International Monetary Fund as a drought pushes the economy toward recession. Adding to the concerns, President Alberto Fernández’s chief of advisers resigned on Wednesday without providing a reason.
On top of that, international reserves slumped this week to a record low for the year, even after the IMF disbursed a US$5.4-billion loan late last month.
Argentina is now racing against time to avoid a renewed currency crisis as local investors try to dollarise assets on fears the government will be forced to devalue its currency ahead of presidential elections in October.
“The government is trying to buy time with price and import controls, a positive but low real interest rate, multiple exchange rates to circumvent the effects of an overvalued official currency, and debt renegotiations that push maturities into the new presidential term. Those measures may prevent a near-term collapse, but plant the seeds for a difficult post-election outlook," said Adriana Dupita, Bloomberg's economist for Brazil and Argentina.
Argentina’s parallel exchange rate, known locally as the blue-chip swap, slid as much as 0.9 percent to touch a record 436 pesos per dollar, as of 3.23pm local time.
by Scott Squires & Ignacio Olivera Doll, Bloomberg
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