The Central Bank has raised a floor on its benchmark interest rate to 78 percent from 58 percent for the rest of September as the government fights a resurgence in inflation triggered by political uncertainty.
The rate floor will lower to 68 percent for all of October, while Central Bank officials project that Argentina’s monetary base will grow at a monthly rate of 2.5 percent in September and October, the bank said in a statement Wednesday, adding that the expansion of the monetary base will be adjusted by interventions in the currency market.
Argentina’s record US$56-billion credit line with the International Monetary Fund stipulates zero monetary base growth.
“The monetary policy committee considers these measures will allow for real positive interest rates to be sustained and to restart the disinflation process starting in October,” the Central Bank, led by President Guido Sandleris, said.
Argentina has had the world’s highest interest rates for over a year as it battles runaway inflation amid a currency crisis. The current benchmark rate, which is set every day through short-term debt auctions, finished Wednesday at 83 percent.
It’s the latest of several changes to monetary policy this year as annual inflation remains stubbornly above 50 percent. Prices were cooling in recent months, until market-friendly President Mauricio Macri lost by a bigger-than-expected margin to opposition candidate Alberto Fernández in the August 11 PASO primary election. Fears that Fernández will reverse Macri’s pro-market stance in case he wins the October 27 presidential election triggered a peso sell-off, which sparked a surge in inflation.
The continuation of the IMF agreement, the largest ever approved by the Washington organisation, is in doubt amid policy uncertainty and investor fears that Argentina will default on its debt. In a separate statement Wednesday, an IMF spokesman acknowledged the latest change to Central Bank policy, noting Finance Minister Hernán Lacunza’s upcoming visit to Washington.
“IMF Staff remain engaged with Argentina and continue to work with the authorities to address the challenging situation that Argentina faces,” the spokesman said in the statement.
by Patrick Gillespie, Bloomberg