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ECONOMY | 28-04-2018 08:48

Central Bank raises rates to 30.25% after peso slumps against dollar

Institution decides to intervene, citing “the dynamics of the exchange market” as reasoning.

The Central Bank (BCRA) surprised markets yesterday by raising its key interest rate to 30.25 percent from 27.25 percent, reacting to the peso's slump to a record low against the US dollar.

At one point, the peso was selling at 21.20, surpassing previous highs. It eventually closed at 20.88 to the dollar to sell, four cents higher than previous records.

“The Central Bank has ordered an increase its monetary policy rate by 300 basis points to 30.25 percent,” the BRCA said in a statement.

The institution cited the weakness of the peso as a cause and and vowed to act again if high inflation continues to be a problem.

“Given the dynamics of the exchange market, the monetary policy committee met outside of its pre-established schedule and decided to increase its monetary policy rate,” the bank said in a statement quoted by Reuters.

The BRCA said it was “ready to act again if necessary.” The Central Bank promised to “continue using all tools at its disposal and conduct its monetary policy to reach its inflation target of 15 percent for 2018.”

Most experts, however, believe the 15-percent target is already beyond reach, with inflation statistics for the first four months of the year outpacing hopes. President Mauricio Macri’s administration has struggled to keep a hold on inflation, particularly as higher utility bills pushing the figure up.

The drop in rates came 24 hours after the Central Bank began to make large interventions in trading sessions in an attempt to stabilise the currency. On Wednesday, the Central Bank shifted US$1.472 billion on the local spot market, in what expects described as the largest intervention by the institution in approximately 15 years.

The bank has tried to stabilise and prop the peso repeatedly over the last few months in a series of attempts to slow inflation.

Reuters says the Central Bank has sold more than US$4 billion since March.

Despite more than US$2 billion having been sold in the past week, Central Bank reserves remain high, standing at close to US$59 billion.

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