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Argentina Hikes Rates After Prices Surge Past Expectations

Argentina Hikes Rates After Inflation Surges Past Expectations

Argentina hiked interest rates Thursday after an October inflation report showed consumer prices surged at the fastest pace this year.

Central bank board members raised the benchmark Leliq rate to 38% from 36%, along with increases in repo rates and retail certificate deposits, according to a spokesman. The move came minutes after government authorities reported October inflation at 3.8% compared to the previous month, exceeding economists’ median estimate for a 3.1% jump.

The hike represents Argentina’s latest step toward using orthodox policy actions to curb both inflation running at 37.2% on an annual basis and a surge in dollar demand after a fresh round of currency controls in September. The gap between the official and so-called blue chip swap rate widened to as much as 130% in October before paring losses.

Argentina Hikes Rates After Prices Surge Past Expectations

The government has taken several measures to close the gap, which has since narrowed to 87%. One of those steps has been a series of rate hikes, which contrasts with the government’s decision earlier this year to swiftly lower rates that had been as high as 85%.

What Bloomberg Economics Says...

“President Alberto Fernandez’s administration still lacks a clear strategy to tame inflation. One may be forthcoming in the new arrangement being negotiated with the IMF.”

-- Adriana Dupita, Latin America economist

For the full note, click here

Thursday’s policy decision is the fifth increase for the repo rate since Oct. 1 as the central bank seeks to encourage Argentines to save and invest in pesos, though rates still remain below annual inflation.

Read More: Argentina Goes All-In to Cut Record Gap With Parallel Peso (1)

The outlook for price increases remains volatile. In October, clothing, food and non-alcoholic beverages and household items led all categories in gains as the country loosened quarantine restrictions. The government lifted price freezes on over 50 products Thursday as it negotiates a new program with the International Monetary Fund.

So far this year, it’s printed 1.6 trillion pesos ($20.1 billion) to finance Covid-19 stimulus spending, raising inflation expectations for 2021.

©2020 Bloomberg L.P.