Central Bank of Argentina raises its reference interest rate to 49%

The board of directors of the Argentine central bank (BCRA) announced on Thursday a rise of 200 basis points in its reference interest rate to 49% per annum in pesos, in an effort to combat the high inflation suffered by the third-largest economy in Latin America.

The measure, previously advanced by Reuters, accompanies the adverse global situation and aims to reduce inflation that could close 2022 above 60% per year.

“The BCRA expects inflation in the coming months to continue to decline gradually,” the bank said in a statement on Thursday, after the government announced inflation of 6% in April.

“The current international financial conditions and the recent behavior of the commodity markets suggest that a certain stability in the prices of raw materials may have been achieved,” the press release added.

The new rate applicable to Liquidity Bills (“Leliq”) for 28 days is equivalent to 61.7%, effective annual, slightly above the 58% of inflation of the last 12 months to April, although below the 65% that private analysts forecast for this year.

“We believe that the rate hike would not have much effect on reducing inflation and that it is used to make room for a somewhat faster advance in the FX (exchange rate) given the need to accumulate reserves to meet the objective of quarterly and annual accumulation,” said the SBS Group.

A positive real rate is one of the points agreed upon between Argentina and the International Monetary Fund (IMF) in the agreement they closed in March to restructure a debt of 44,000 million dollars, which the country could not cancel due to a long economic crisis.

“The BCRA will continue to monitor the evolution of prices and will evaluate reversing the bias of monetary policy as soon as a downward path in the inflation rate is consolidated,” the bank said.

After raising its benchmark yield to 40% in January (from 38% previously), the central bank had last increased the rate in April to 47% annually.

the war between Russia and Ukraine triggered global inflation with the rise in raw materials, forcing most central banks to increase their rates, in the face of a general slowdown in the international economy.


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