BUENOS AIRES, April 27 (Reuters) – Argentina’s central bank hiked its benchmark interest rate 10 percentage points to 91% on Thursday, as it tries to tame high inflation and steady the peso currency, which has tumbled in black market trading.
The hike, the biggest since a market meltdown in August 2019, comes after the central bank (BCRA) had already lifted the rate last week by 300 basis points to 81% in an effort to control inflation running at 104% annually.
The central bank formally confirmed the latest hike in a statement.
News of the sharp rate hike lifted the peso currency in the black market , which strengthened 1.3% to 463 per dollar on Thursday, although it was still over 100% off the official exchange rate of 222 per dollar.
A higher interest rate offers more incentives to savers to keep their funds in pesos, strengthening the local currency, but weighs on borrowing and economic growth.
‘PROMISING, BUT LATE’
“The rate increase is a promising measure, but late,” said Sergio Chouza from the Sarandi consultancy.
Analyst Leonardo Chialva said the move would be a “patch” that could bring calm to the markets for now but would not fix the root issues, especially with the government under pressure to spend ahead of general elections in October.
“The underlying problem is the fiscal one, and the cure needed is difficult to pull off in an election year,” Chialva said.
Argentina, a major global grains and beef supplier, is battling inflation that topped 104% in March, with analysts predicting prices will rise this year by some 110%-130%. The peso currency is also quickly losing value against the dollar.
The South American country has a $44 billion loan program with the International Monetary Fund (IMF), which includes targets to have a positive real interest rate, rein in inflation and build up its scant foreign currency reserves.
Reporting by Jorge Otaola; Writing by Adam Jourdan
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