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  HOME | Argentina

Argentine Central Bank Raises Key Interest Rate to 40%

BUENOS AIRES – Argentina’s central bank (BCRA) raised on Friday its monetary policy rate to 40 percent, its third big hike in a week and a move aimed at halting the sharp depreciation of the peso against the United States dollar.

“The monetary authority made these decisions with the goal of preventing disruptive behaviors in the currency market, as well as guaranteeing the disinflation process, and is ready to act again if necessary,” the bank said in a statement.

The latest hike, which lifted the main interest rate by 675 basis points to 40 percent, caused the peso to strengthen to around 21.7 to the dollar.

The BCRA said in a statement that the institution would continue to intervene in the currency market with all the tools at its disposal.

It said it remained committed to lowering the inflation rate (currently at around 25 percent) to 15 percent by the end of 2018 even though consumer prices rose 6.7 percent in the first quarter, mainly due to budget deficit-tackling subsidy cuts that have sent utility rates soaring.

The peso’s steep depreciation relative to the dollar in recent days has generated deep uncertainty in Argentina, where people have traditionally accumulated greenbacks as an inflation hedge.

The Argentine currency plunged 8.62 percent against the greenback on Thursday, prompting the central bank to raise its policy rate by 3 percentage points to 33.25 percent. The monetary authority had already carried out a 3-percentage-point rate hike last Friday.

Despite dipping into its reserves and selling record amounts of dollars in foreign exchange markets, the peso traded at 23.30 per greenback on Thursday, down from 18.65 at the start of the year.

Separately Friday, the government announced a reduction in its fiscal deficit target for this year.

Finance Minister Nicolas Dujovne said at a press conference that the target would be lowered from 3.2 percent of gross domestic product to 2.7 percent of GDP, adding that the move would save the government around $3.2 billion.

 

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