Argentina Set to Raise Key Rate to 42.5% Thursday, Official Says

(Bloomberg) — Argentina’s central bank raised its benchmark interest rate by 250 basis points to 42.5% on Thursday, further tightening monetary policy to align with goals set out in the government’s talks with the International Monetary Fund.

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The increase marks its second rate hike this year, according to a central bank statement. IMF staff have called for interest rates in Argentina to exceed annual inflation running at 51% as part of a pending program to reschedule the government’s $40 billion of outstanding debt with the IMF.

While the borrowing costs still remain below inflation, Thursday’s rate increase will take the effective annual rate to 51.9% from 48.3%, according to an official who asked not to be named since the figure wasn’t part of the formal statement. Policy makers at the central bank consider that the effective annual rate, which accounts for compounded interest, is the one that needs to exceed inflation to comply with the IMF’s goals.

Talks between the government and the IMF picked up momentum. After reaching a tentative agreement on key issues in late January, the Fund’s Executive Board met Wednesday with staff officials to discuss the state of talks with Argentina. The government aims to reach a staff-level IMF agreement before March.

The central bank will also create a new 180-day note, known as a Notaliq, that will have a nominal rate of 47%, according to the statement.

(Updates with central bank statement)

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