Hike rates

Buenos Aires Weather | Central Bank set to raise rates again in case of price spike

Argentina’s central bank is preparing to raise its benchmark Leliq rate again next month as annual inflation tops 70%, according to people with direct knowledge of the matter.

The Central Bank’s board has already decided to tighten borrowing costs further in September, with a hike likely to reach 500 basis points, the sources said, asking not to be named in private conversations . That would be a smaller increase than the two most recent, by 950 basis points and 800 basis points, respectively.

Argentina will release inflation data for August on September 14, and the Central Bank estimates it will be below July’s monthly level of 7.4%, the sources said. The final impression will likely determine the magnitude of the rate increase. The Central Bank Board of Directors usually meets on Thursdays.

The currency entity sees limited space to continue raising rates because an aggressive move could slow economic activity ahead of an election year, the people said. It would also impact the interest payments the Central Bank has to make on its debt, generating an expansive monetary effect, they added.

A central bank spokesman declined to comment.

Raising rates closer to annual inflation levels is part of the government’s effort to encourage savers to stick to the peso as reserves approach lows. It is also a key pillar of Argentina’s $44 billion deal with the International Monetary Fund, which provides for so-called positive rates.

by Ignacio Olivera Doll, Bloomberg