Argentina Raises Its Key Interest Rate to 52% as Inflation Spikes

(Bloomberg) — Argentina’s central bank lifted its benchmark interest rate Thursday for the sixth time this year to 52% as the government struggles to cool inflation expectations.

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The monetary authority raised the key Leliq rate by 300 basis points, according to a statement. The central bank also raised the minimum rate on fixed-term deposits for savers to 53%.

The move comes two days after Argentina’s statistics agency said annual inflation is running at a 30-year high of 61%. So-called positive rates are one pillar of Argentina’s $44 billion deal with the International Monetary Fund.

Read More: Argentina’s Inflation Tops 60% With Peak Still Ahead

The rising rates so far this year hasn’t helped tame Argentines’ expectations as the international impact on energy and food prices, along with already high inflation, keep uncertainty high. Economists surveyed by the central bank forecast inflation at nearly 73% by the end of this year.

In the statement, the monetary authority pointed to May inflation of 5.1% showing a deceleration from the previous month. “The central bank hopes that monthly inflation prints will continue descending gradually,” it added.

Read More: Inflation at 58% and Rising Leaves Argentina’s Shoppers Adrift

Central bank officials face two key challenges in the second half of the year to comply with the IMF program: building up more cash reserves and staying within limits on money printing.

Economists also see the monetary authority speeding up the pace of the peso’s controlled devaluations, or crawling peg, later in the year as it focuses on boosting reserves, a tradeoff that risks stoking inflation in the near term.

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The IMF board is set to assess the first staff review of the program on June 24.

Local Debt

In a separate statement, the Economy Ministry stated it would continue its effort to try to create “attractive” conditions for investors of its local debt. The government’s inflation-lined debt in pesos faced a steep sell off last week as investors grew concerned about its ability to pay with prices rising 61% annually.

The government also published decrees Thursday updating the annual budget to reflect targets within the IMF program, such as the primary fiscal deficit. The 2021 budget was carried over into this year after congress rejected the government’s drafted budget for 2022. Another decree Thursday addresses the segmentation of price increases for Argentina’s utility bills, the most politically sensitive part of the IMF program.

(Updates with Economy Ministry statement in ninth paragraph)

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