Argentina Tightens Monetary Policy as Inflation Spikes Again

(Bloomberg) -- Argentina’s central bank will shrink its monetary base by an extra 10 percent before the end of the year to slow inflation that has proven difficult to tame.

“We need to be persistent, understanding that there are no immediate results,” central bank President Guido Sandleris told reporters in Buenos Aires. “But without a doubt, there will be results.”

The extraordinary steps come after the government said on Thursday that inflation in February hit the fastest annual pace since President Mauricio Macri took office in late 2015, which could complicate his re-election bid in October. Macri turned to the International Monetary Fund for a record $56 billion credit line to restore stability to markets after a currency rout.

While the peso jumped today, before the data was released, the currency has fallen 8 percent this year.

These are the other steps the central bank will take:

• Extends policy to freeze monetary base growth until the end of the year
• Adjusts upper and lower bands of FX range by 1.75 percent per month, starting in April
• Government to send central bank charter bill to Congress in coming weeks
  • Forbids central bank from financing Treasury
  • Makes price stability a priority

Consumer prices rose 3.8 percent from January and 51.3 percent from a year ago. Economists surveyed by Bloomberg expected inflation to accelerate to 3.6 percent from the previous month, even as the central bank increases interest rates and freezes the amount of pesos in circulation.

After three months of slowing inflation late last year, the central bank lowered Argentina’s benchmark interest rate to about 44 percent. But it was forced to raise them back to 63 percent this week as part of a strategy to rein in prices and keep the appeal of the peso.

Macri needs to avoid another currency crisis to have a chance of winning the October presidential election.

--With assistance from Jonathan Gilbert and Jorgelina do Rosario.

To contact the reporters on this story: Patrick Gillespie in Buenos Aires at pgillespie29@bloomberg.net;Ignacio Olivera Doll in Buenos Aires at ioliveradoll@bloomberg.net

To contact the editors responsible for this story: Carolina Millan at cmillanronch@bloomberg.net, Walter Brandimarte

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