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ECONOMY | 27-04-2023 15:33

Argentina's Central Bank sharply raises key rate to 91% amid peso slump

Central Bank dramatically raises benchmark interest rate by 1,000 basis points, boosting key Leliq rate to 91% in bid to cope with inflation and economic crisis.

Argentina’s Central Bank dramatically raised its benchmark interest rate by 1,000 basis points on Thursday as a renewed peso selloff in parallel markets piles more pressure on the country’s economic crisis, according to two people with direct knowledge of the decision.

The Central Bank’s board boosted its key Leliq rate to 91 percent from 81 percent, according to the people, who asked not to be named before the decision is made official by the monetary authority. The Economy Ministry first announced the rate increase intention in a statement sent by message. The Central Bank’s press office declined to comment. 

It’s the biggest rate hike in the three years and a half years of President Alberto Fernández’s administration. The Central Bank, which typically decides on its rate levels on Thursdays and doesn’t have a precise time to release a statement, isn’t independent and is headed by a Fernández ally.

The move by the bank known as BCRA is also the second rate increase in as many weeks as the government works to stop a sharp decline in the country’s currency in parallel markets with annual inflation running at over 100 percent. That backdrop is challenging policymakers’ efforts to avoid a sharp devaluation on the official exchange rate, which is managed by currency controls.

The parallel rate, known by its Spanish acronym CCL, strengthened 2.2 percent to 460 pesos per dollar Thursday after Reuters first reported on the possible rate hike. Still, the currency lost 13 percent last week.

Lifting rates comes on top of other recent emergency measures, such as the Central Bank tapping a swap line from China to finance imports or intervening in financial markets even as the International Monetary Fund warns against such a strategy.

Earlier this week, Economy Minister Sergio Massa vowed to use “all the tools of the state to stabilize this situation” and halt the collapse in the nation’s parallel exchange rates.

 

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by Ignacio Olivera Doll & Patrick Gillespie, Bloomberg

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