Argentina cenbank mulls another rate hike to tame 100% inflation – adviser, analysts

By Jorge Otaola

BUENOS AIRES (Reuters) – Argentina central bank board have been discussing the idea of another potential interest rate hike from the current 78% level, an adviser to the bank said on Wednesday, with analysts anticipating a 200-basis-point raise to contend with annual inflation running at over 100%.

The possible hike would be the second in a row after a sharp rise in the benchmark rate last month when rampant inflation forced the bank to tighten monetary policy, dashing earlier hopes of an economy-boosting cut if prices cooled.

“The possibility of a new rate rise has been raised, but it is not yet defined,” an advisor to the central bank told Reuters, asking not to be named as the discussions were private.

A central bank spokesman declined to comment. The bank board normally meets on Thursday though it may wait for March inflation data due at the end of the week before making any decision.

Analysts, however, unanimously agreed another hike was likely, with monthly inflation for March expected to have accelerated to above 7%, the fastest since July last year.

“Most probably the central bank will raise the reference rate again and continue betting on the nominal race: rate versus inflation, which could help buy time,” said Eugenio Marí, economist at the Libertad y Progreso Foundation.

He added, however, that this would “continue to worsen” the bank’s balance sheet, with fewer reserves and greater debt.

Fausto Spotorno from Orlando Ferreres y Asociados, said the rate would likely be hiked, despite the negative impact higher rates have on economic growth. Argentina is battling poverty near 40% and a wobbly peso currency.

Gustavo Ber, from Estudio Ber, said that “the central bank should raise the rate again under a gradual and staggered strategy to cushion the impact on economic activity”. He agreed the rate would likely rise to 80%.

Argentina, heading towards crunch elections in October, is battling to meet economic targets in a $44 billion loan deal it has with the International Monetary Fund (IMF), including building up foreign currency reserves, cutting inflation and having positive real interest rates.

Argentina: inflation spirals https://www.reuters.com/graphics/ARGENTINA-ECONOMY/zgpomndbrpd/chart.png

(Reporting by Jorge Otaola; Editing by Adam Jourdan and by Sandra Maler)