Argentina Central Bank Lifts Rate to 81% as Inflation Jumps

(Bloomberg) — Argentina’s central bank increased its benchmark interest rate by 300 basis points Thursday after annual inflation soared in March and foreign currency reserves slumped.

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The key Leliq rate rose to 81%, one of the highest monetary policy rates in the world, according to a central bank statement. Reuters reported the move earlier.

Argentina also posted a $1.1 billion trade deficit in March, the widest in nearly five years. Agriculture exports fell 34% from a year ago, according to new government data. The Buenos Aires Grains Exchange slashed its soy production estimate Thursday to 22.5 million metric tons, down from 25 million previously as a record drought has destroyed much of the essential crop.

Read More: Argentina Inflation Accelerates More Than Expected to 104%

Argentina’s markets have taken a beating in recent days after inflation surged more than expected to 104% in March and uncertainty swirled over the nation’s reworking of its $44 billion program with the International Monetary Fund as a drought pushes the economy toward recession. Adding to the concerns, President Alberto Fernandez’s chief of advisers resigned on Wednesday without providing a reason.

On top of that, international reserves slumped this week to a record low for the year, even after the IMF disbursed a $5.4 billion loan late last month.

Argentina is now racing against time to avoid a renewed currency crisis as local investors try to dollarize assets on fears the government will be forced to devalue its currency ahead of presidential elections in October.

What Bloomberg Economics Says

“The government is trying to buy time with price and import controls, a positive but low real interest rate, multiple exchange rates to circumvent the effects of an overvalued official currency, and debt renegotiations that push maturities into the new presidential term. Those measures may prevent a near-term collapse, but plant the seeds for a difficult post-election outlook.”

—Adriana Dupita, economist for Brazil and Argentina

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Argentina’s parallel exchange rate, known locally as the blue-chip swap, slid as much as 0.9% to touch a record 436 pesos per dollar, as of 3:23 p.m. local time.

(Updates with attribution to central bank statement in second paragraph)