BCRA to hold interest rate at 75% as inflation reheats, bank sources say

Argentina's central bank is set to hold its benchmark interest nominal rate steady at 75% this week despite inflation gaining pace once more.

Argentina’s central bank is set to hold its benchmark interest nominal rate steady at 75% this week despite inflation gaining pace once more, but hopes of a potential rate cut early this year are fading as prices heat up, bank sources (BCRA) told Reuters and The Herald.

BCRA hiked rates through most of last year. It put the breaks on monetary tightening in October, and has since left the benchmark rate unchanged on hopes that inflation, running near 100% annually, was cooling.

Although monthly inflation has ticked up since December, the central bank is not expected to make a new hike. Consumer prices rose 6% in January and inflation clocked in at 99% on an annual basis, the government said on Tuesday.

An official central bank source said a rate hike debate was not expected to be “on the agenda” ahead of the board’s weekly meeting on Thursday. The bank normally makes rate decisions mid-month, though these can come at other times.

A central bank adviser told Reuters on condition of anonymity that the rate was unlikely to be raised or lowered this month.

A period of slowing inflation in the second half of last year had seeded hopes that there could be a cut in early 2023.

“At the end of last year it was thought that inflation would decrease slowly and for this reason a possible drop in rates was even analyzed, but now the reality has changed and it does not seem appropriate to make monetary changes,” the person said.

“It will be important to see the trend of core inflation, without forgetting the external financial context.”

No great pressure

Analysts agreed a hike was unlikely.

“It should be held steady given that the nominal annual monetary policy rate of 75% is consistent with inflation of almost 6.3% per month,” said Roberto Geretto at Argentina investment fund Fundcorp.

“Even if it goes slightly above this number, there would be no great pressure from that side to raise (rates).”

Mauro Mazza of Bull Market Brokers said he expected the bank to leave both the benchmark ‘Leliq’ rate and repo rates steady. He flagged worries about rising Treasury issuance, with the government raising the rates it offered to roll over debt.

Argentina holds elections in October, with the embattled Peronist ruling coalition fighting to avoid defeat by the conservative opposition, which leads in the polls with voters worried about inflation and economic malaise.



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