Argentina hikes interest rate by 300 basis points as inflation rises

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A cashier searches for changes to his checkout machine as years of inflation continue to devalue the Argentine peso bill, meaning people in Buenos Aires, Argentina, May 23, 2022 must carry massive amounts of cash. REUTERS/Cristina Sille

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BUENOS AIRES, June 16 (Reuters) – Argentina’s central bank on Thursday raised its benchmark interest rate to its highest level in three years, on the heels of a major interest rate hike by the US Federal Reserve and a surge in the South American country. Inflation is over 60%.

The central bank raised interest rates by 300 basis points to 52 basis points, the sharpest rise since 2019, citing growing perceptions of financial risks, rising global prices and the need to boost savings in the hard-hit local peso currency. % done.

The move by Argentina, which has one of the highest inflation rates in the world, comes as central banks across Europe and huge neighbor Brazil have hiked interest rates in recent days to stem rising prices. . Continue reading

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“The rate hike works mainly by encouraging saving in pesos,” the central bank said. It will continue to calibrate monetary policy while tracking inflation.

Initially fueled by soaring oil prices in the wake of Russia’s invasion of Ukraine, global inflation has spread to everything from food to services, with double digits in some countries around the world.

Argentina, a big grain exporter trying to rebuild depleted foreign exchange reserves, saw prices rise 5.1% in May alone and multiple annual inflation forecasts of over 70% this year, fueled by savings and wages.

Government sources said on Thursday they expect inflation to come in the range of 52% to 62% for the year, much lower than analysts had forecast but above the agreed target as part of a recent deal with the International Monetary Fund (IMF). lies.

The central bank said it expects monthly inflation “to continue to decline gradually” after peaking in March.

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Analysts said the sharp rise was a sign of the bank’s desperation to contain inflation and ensure investors don’t run out of peso-denominated securities.

“It looks like the central bank is sticking with this fight,” said Christian Viand, managing partner at Criteria, a settlement and clearing house in Buenos Aires.

Mariano Sardon, chief executive of FDI Wealth Manager, said the hike is unlikely to outpace inflation as confidence in the peso had already increased and some believed prices would rise after years of high inflation. can be brought under control.

“What exists is complete distrust,” he said.

Argentina is a major exporter of soy, corn and wheat, which have come under increasing focus amid the global supply crisis. It’s also the IMF’s biggest borrower, having secured a new $44 billion deal earlier this year.

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Reporting by Jorge Otaola; Additional reporting by Jorge Iorio; Writing by Adam Jordan Editing by Margherita Choy, Alexandra Hudson and Deepa Babington

Our standards: Thomson Reuters Trust Principles.

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