Argentina’s Central Bank will not raise interest rates despite leap in inflation

With price rises slowing in September, the government is confident that the current rate will stay positive in real terms

The Central Bank will keep the interest rate unchanged despite the jump in inflation, three sources at the institution told the Herald’s sister title, Ámbito. In August, monthly inflation hit a three-decade high, figures published on Wednesday revealed.

The sources said the decision was based on surveys that showed a moderation in price variation during September. The government is confident that at these levels, the interest rate will remain positive in real terms. 

A Central Bank director ruled out another jump in the exchange rate after the presidential elections and said that the crawling peg — the policy of slow, systematic devaluation of the peso — would return. 

The day after August’s primary elections, the Central Bank devalued the peso by 22%, bringing the official dollar exchange rate to AR$350. It committed to maintaining that rate until October.

After the exchange rate jump in mid-August, all eyes were on the data released by Argentina’s statistics bureau (INDEC, by its Spanish initials) on Wednesday afternoon. To no-one’s surprise, the transfer to prices of the devaluation of the official exchange rate was immediate. Monthly inflation reached 12.4% in August, by far the highest this year to date.

To within a few decimal places, it was the number that both consulting firms and members of the economic team expected, so the confirmation of the number will not trigger changes to monetary policy for the time being. “We are seeing that August is a one-off episode triggered by the devaluation. In September inflation will return to single digits,” a BCRA source said.

The government maintains that the 209.4% annual effective rate (AER) that has been in force since mid-August far exceeds the inflation projected for the full year, and therefore the real rate is still positive. “We are going to wait, we are not going to make changes for a month,” another of the sources at the monetary institution said.

This Wednesday, the BCRA bought US$24 million and extended its buying streak to 22 rounds, the longest of the year. Between August and September to date, it has managed to accumulate close to US$2.5 billion. It expects to gather a similar amount with the new soybean liquidation scheme, which improves the real exchange rate for exporters. With this cushion, it aims to comply with its promise to keep the official dollar rate fixed until after the elections and to keep parallel currencies at bay.

“Soybean liquidation under the new program is coming along well, I think we’ll see it bringing in around US$2 billion,” BCRA director Agustín D’Attellis told Radio 10.

He also completely ruled out the possibility of another jump in the exchange rate like the one that took place in August. In November, the Central Bank will resume the scheme of daily micro devaluations, he said, “taking into account inflation, economic activity and the devaluation of trading partners.”

Originally published on Á / Translated by Amy Booth


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