Argentina made official this Monday the increase in its reference interest rate, from 91% to 97%, to encourage investment in pesos, as part of a plan of measures to combat inflation that left “little taste”among market operators, who take it for granted that prices will accelerate beyond the 108.8% annual rate registered in April.
Although the Central Bank of the Argentine Republic (BCRA) seeks to “prevent financial volatility from acting as a driver of inflation expectations”, the analysts indicate that these rate increases are also behind the expected inflation, because they anticipate that the monthly rise in prices of 8.4% in April will increase.
Parallel exchange rates – which reflect macroeconomic imbalances in a context of strong restrictions to access the official exchange market – began to rise on Monday’s wheel: the “financial dollars” rose 0.5% on average and the “blue dollar” (the illegal one) rose two pesos to 476, double the official wholesaler, which rose 10 cents to 230.60 pesos per dollar.
The BCRA ordered this Monday to raise the monetary policy rate by 600 basis points, so that the nominal annual rate of the 28-day Liquidity Letters (Leliq) went to 97%, which in effective annual terms (TEA) goes to 155%
This is the third increase after the exchange crisis at the end of last April, when the monetary entity had increased the reference rate by 1,300 points.
For “maintain the incentive to save in pesos”, the BCRA raised this Monday the minimum guaranteed interest rate to 97% per year on 30-day fixed-term deposits of individuals and up to 30 million pesos, which implies a TEA of 154%, and for the rest of time deposits, the minimum guaranteed rate becomes 90%, or a TEA of 138%.
economy reaction
The BCRA thus made official one of the announcements made by the spokesmen for the Minister of Economy, Sergio Massa, this Sunday, after the inflation indicator for April was released on Friday, which was worse than expected, since it accumulates 32% in the first four months of the year.
“The reaction of the economic team left little taste, by focusing only on an interest rate increase that, given the inflationary surprise, was discounted by the market”, explained in a report the agency Portfolio Personal Inversiones (PPI), which highlighted that the real interest rate was very negative for those depositors who established a fixed term at the beginning of April.
“High inflation like the one we are going through can only be stopped with a stabilization plan, which, at this point in time, sounds utopian.”, detailed PPI, so it expects that inflation will continue to rise and will be accompanied by rate increases that slightly alleviate the acceleration of inflation, while it considered that “are the August/October elections“next the ones”could shed certainty with the triumph of a ‘market friendly’ government”.
The Argentine economy suffers from the fluctuations of the electoral climate, this year it will hold presidential elections, in a context of international reserves at critical levels, deepened by the collapse of agricultural exports due to a historic drought, and a high monetary issue to finance the treasury, while it must comply with the agreement with the International Monetary Fund that refinanced its debts for US$ 45,000 million.
Other measures
The plan announced by Massa’s team includes that the BCRA will increase intervention in the foreign exchange market and will seek to speed up the agreements with the International Monetary Fund (IMF), the currency swap with China and talks with the bloc of the BRICS, which make up Brazil, Russia, India, China and South Africa, who will go deeper into the trip to China at the end of this month.
The Government will also form a unit for the analysis of trade operations and a “new role” of the Central Market, which will be able to directly import products without tariffs to be sold in stores, and will suspend ‘antidumping’ duties in some branches of products to reduce the price of imports and encourage competition.
At the same time, it plans to implement tax relief for micro, medium and small companies for the payment of debts.
The BCRA also reduced this Monday two percentage points, to 86% from next June, the rate for financing unpaid credit card balances for citizens.
Source: EFE
