Argentina raises interest rate 950 basis points to 69.5%

A man walks past Argentina’s central bank on July 4, 2022 in Buenos Aires. Prices rose 7.4% in July, pushing annual inflation to a 20-year high of 71%.

Tomas Cuesta | Getty Images News | Getty Images

Argentina’s central bank raised its benchmark interest rate by 950 basis points on Thursday as the country struggles to control spiraling inflation that rose to a 20-year high of 71%, according to new data

The central bank raised the benchmark “Leliq” rate for the 28-day term to 69.5% from 60%, a rate the bank set just two weeks ago when it raised the rate by 800 basis points and the government reshuffled its cabinet to install a “super minister” of the new economy.

New inflation data on Thursday underscored the urgency driving economic policy: Prices rose 7.4 percent in July, beating expectations and pushing annual inflation to a 20-year high of 71 percent. The month saw the resignation of President Alberto Fern√°ndez’s finance minister, followed by the impeachment of his replacement.

The figures dashed hopes that upbeat inflation reports this week in the U.S. and Brazil, where prices fell a record 0.68% in July, could portend good news for the broader economy large of the Southern Cone.

In Mexico, the central bank also raised the country’s benchmark interest rate by three-quarters of a percentage point on Thursday to 8.5%, its highest level since the bank’s current regime was put in place on 2008. Mexico’s annual inflation rose last month to 8.15%, a level not seen since December 2000.

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Argentina’s central bank said in a statement that its decision “will help reduce inflation expectations for the rest of the year and consolidate financial and exchange rate stability.”

The bank also said the decision is intended to bring rates “closer to positive ground in real terms”.

A positive real interest rate is one of the points agreed between Argentina and the International Monetary Fund (IMF) in a recent $45 billion debt settlement.

Reducing inflation, which is expected to reach 90% by the end of the year, as well as Argentina’s crippling debt and chronic overspending, are at the top of the agenda for the latest economy minister of the country, Sergio Massa, who has also assumed manufacturing and agriculture competencies.

Massa conveyed the urgency on Thursday when he announced a plan to give tax and customs breaks to oil companies and cut red tape in an effort to boost investment in the country’s Vaca Muerta shale formation.

“Vaca Muerta is accelerating as of today,” Massa said.


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