The Central Bank of Argentina raised its interest rate by 1000
basis points after a 300 basis point increase last week, following
higher-than-expected inflation. According to a statement from the BCRA, the
Leliq interest rate was raised from 81.00% to 91.00%. This is the biggest
increase since the crisis in August 2019. BCRA raised the rate for deposits up
to 10 million pesos for individuals from 81.00% to 91.00%, and for the remaining
private sector deposits from 72.50% to 85.50%.
In March, inflation in Argentina reached its highest monthly
increase in 20 years, surpassing market expectations due to the country's worst
drought in history and the start of the education season. Consumer prices rose
by 7.7% compared to the previous month, with market expectations at 7.1%. The
year-on-year increase in prices reached 104.3%.
According to the statement, "The decision of the monetary
authority is based on the aim of achieving positive real returns on investments
denominated in the local currency, as well as to preserve monetary and
financial stability." The interest rate hike led to a 1.5% increase in the
spot market for the peso, but it was not enough to close the over 100% difference
between the free market exchange rate and the official exchange rate. The peso
was trading at 462-465 against the dollar in the spot market, while the
official exchange rate was announced at 222 today.
The BCRA stated that it
will continue to monitor the general price level, the dynamics of the financial
and foreign exchange markets, and the development of monetary aggregates to
calibrate its interest rate policy.