Argentinian central bank raises interest rate to 75%

16 Sep 2022 , 10:33 AM

The Central Bank of Argentina increased its benchmark interest rate on Thursday in an effort to support the peso and slow the country’s rapidly rising inflation.

According to a statement sent through email, the Central Bank raised its benchmark Leliq rate by 5.5 % to 75 %. The action was taken after statistics revealed that consumer prices rose at the quickest rate in 30 years in August, climbing about 79 %. It was the ninth rate increase this year by the bank. The bank’s board of directors also stated in the press release that it plans to lower the amount of short-term debt held by the Central Bank. However, it omitted more details.

In a meeting with Kristalina Georgieva, the managing director of the International Monetary Fund, earlier this week, Central Bank President Miguel Pesce and Economy Minister Sergio Massa reaffirmed their commitment to putting the country’s US$44.5 billion agreement with the IMF into effect. Maintaining interest rates higher than the rate of inflation is a crucial component of the agreement.

“The fresh rate hike catches up with the increase in predicted and existing inflation, but may not be enough to rein in inflation or increase reserves. The new rate is less likely to persuade households to save or investors to hold positions in pesos due to the significant uncertainty surrounding inflation and the ongoing possibility that the peso will soon experience a sharper depreciation, according to Adriana Dupita, an economist for Bloomberg covering Latin America.

By the end of the year, inflation will have accelerated to 95%, according to economists surveyed by the Central Bank. The high percentages of all-cash employees and enterprises in Latin America make monetary policy less effective than in developed countries, despite the fact that central banks there have boosted rates this year to tackle rising inflation. The Central Bank of Argentina gradually raised interest rates at the beginning of the year, but in the last three months, it has stepped up those increases, totaling a 23 % rise since July.

Pesce and Massa are under increased pressure as a result of their decision to lower the exchange rate for soy growers in September, the country’s main export, in an effort to bolster the nation’s depleting foreign reserves. The official peso exchange rate has been maintained by the Central Bank and is now at 143 per dollar. The price differential between Argentine stocks and their American depositary receipts determines the blue-chip swap rate, which is an implied exchange rate, and it is now 297 per dollar.

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