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ECONOMY | 16-06-2022 16:54

Argentina raises benchmark rate to 52% as inflation stays hot

Central Bank raises benchmark interest rate for the sixth time this year as the government struggles to cool inflation expectations. 

Argentina’s Central Bank lifted its benchmark interest rate on Thursday for the sixth time this year to 52 percent as the government struggles to cool inflation expectations. 

The monetary authority raised the key Leliq rate by 300 basis points, according to a statement. The Central Bank also raised the minimum rate on fixed-term deposits for savers to 53 percent. 

The move comes two days after the INDEC national statistics bureau statistics agency said annual inflation is running at a 30-year high of 60.7 percent. So-called positive rates are one pillar of Argentina’s US$44-billion deal with the International Monetary Fund. 

The rising rates so far this year hasn’t helped tame Argentines’ expectations as the international impact on energy and food prices, along with already high inflation, keep uncertainty high. Economists surveyed by the Central Bank forecast inflation at nearly 73 percent by the end of this year. 

In the statement, the monetary authority pointed to May inflation of 5.1 percent showing a deceleration from the previous month. “The Central Bank hopes that monthly inflation prints will continue descending gradually,” it added. 

Central Bank officials face two key challenges in the second half of the year to comply with the IMF programme: building up more cash reserves and staying within limits on money printing. 

Economists also see the monetary authority speeding up the pace of the peso’s controlled devaluations, or crawling peg, later in the year as it focuses on boosting reserves, a trade-off that risks stoking inflation in the near term. 

The IMF board is set to assess the first staff review of the programme on June 24.

 

Local debt

In a separate statement, the Economy Ministry stated it would continue its effort to try to create “attractive” conditions for investors of its local debt. The government’s inflation-linked debt in pesos faced a steep sell off last week as investors grew concerned about its ability to pay with prices rising 61 percent annually. 

The government also published decrees Thursday updating the annual budget to reflect targets within the IMF programme, such as the primary fiscal deficit. The 2021 Budget was carried over into this year after congress rejected the government’s draft budget for 2022. Another decree Thursday addresses the segmentation of price increases for Argentina’s utility bills, the most politically sensitive part of the IMF programme.

by Patrick Gillespie, Bloomberg

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