Amid a sharp rise in the parallel US dollar exchange rates and a persisting decline in international reserves, the Central Bank’s board took emergency measures today by raising the benchmark interest rate and further restricting companies’ access to the official dollar market.

The Central Bank’s board raised the benchmark rate by 300 basis points today, from a yearly 78% nominal rate to 81%, seeking to stop the flight by investors and people’s savings from the peso to the US dollar.

The monetary authority also implemented new restrictions for companies, including an extended wait time to receive dollars at the regulated, cheaper rate. Companies now also require a previous authorization to make intra-company debt payments in US dollars.

The rates

On the one hand, the Central Bank implemented an “update in the monetary policy rate,” as it was called in an official press release. Among the changes aimed at individual investors, it raised the rate for 28-day Liquidity Bills, or the “benchmark interest rate”, i.e. the percentage it uses to lend money. 

Repo transactions — repurchase agreements, that is, agreements to sell securities in order to them back at a higher price — were also made more attractive for investors by raising the interest rate by 300 basis points, from 72% to 75%.

The monetary authority also raised the minimum interest rate limits for fixed-rate deposits for individuals to an annual 81% yield for deposits of up to AR$ 10 million and to a 72.5% annual yield for the rest of the fixed-rate deposits.

The decision was made “in order to maintain the incentive to save in pesos,” according to the official communiqué. In the last four days, the parallel exchange rates saw a sharp rise, indicating a flight to the US dollar. The blue-chip swap rate increased by almost 7% — from AR$409 to AR$436. The informal dollar has risen 10% since last Friday, reaching AR$440.

The rates had not been raised since March, when the National Institute for Statistics and Census (INDEC) announced that inter-annual inflation surpassed 100% for the first time in over three decades. Today’srate hike came six days after the INDEC announced that March’s inflation rate had been 7.7%, the highest monthly figure since April 2002.

The restrictions

On the other hand, the Central Bank extended the timeframe in which it sells US dollars at the official rate to companies. Companies have now to finance themselves for 90 days after each transaction has been approved by the Central Bank for transportation fees, and for 60 days for general services. The Central Bank will also start requiring previous authorization for intra-company debt payments in US dollars.

The Central Bank said these measures postpone making US$2 billion in payments, which would further deplete its international reserves for 2023. The Central Bank is currently facing an international reserve scarcity crisis, the main cause of the surge in the parallel US dollar rates. The historic drought also slashed the inflow of dollars from agricultural exports, even though the new agro dollar III offers a preferential exchange rate for agricultural exporters.

Argentina’s other main economic indicators, which motivated the Central Bank’s decisions, are inauspicious. The Market Expectations Survey (REM, in Spanish) conducted by the Central Bank among banks and consulting firms, forecast a 6.3% inflation rate for April. Last November, Economy Minister Sergio had said he hoped inflation for April would be below 4%.

“The Central Bank will continue to monitor the evolution of the general price level, the dynamics of the foreign exchange market, and monetary aggregates in order to calibrate its rate policy,” the press release concluded.

Today, for the first time this week, the Central Bank recorded a positive balance, bringing in US$44 million.

The country’s frail economic context was worsened by intense infighting within President Alberto Fernández’s government this week, with rumors that Economy Minister Sergio Massa would be replaced by Antonio Aracre, who abruptly resigned as Chief Presidential Advisor on Tuesday. Fernández and Massa met at the presidential residence in Olivos to dispel the rumors of the economy minister’s impending exit.

“Massa’s ratification [in office] calmed the dollar down,” sources in the Economy Ministry told the Herald.