© Reuters. FILE PHOTO: The facade of Argentina’s Central Bank is pictured in the financial district of Buenos Aires, Argentina December 7, 2021. REUTERS/Agustin Marcarian
By Eliana Raszewski, Jorge Otaola and Walter Bianchi
BUENOS AIRES (Reuters) – Argentina’s central bank hiked the benchmark interest rate a sharper-than-expected 300 basis points on Thursday after inflation soared past expectations in March to hit 104% on an annual basis, the monetary authority said in a statement.
Reuters earlier reported, citing an official source, that the board had decided to raise the reference rate to 81% from its previous 78% level after March inflation data had clocked in at 7.7%, the highest monthly level in two decades.
The hike extends a new round of tightening by Argentina’s central bank, which is fighting soaring prices and dwindling foreign currency reserves, while the peso currency has hit record lows against the dollar in parallel markets. Drought has battered exports of the country’s main cash crops soy and corn.
The bank hiked the benchmark rate 300 basis points in March, the first raise since September at the end of a vicious tightening cycle through most of 2022. The bank had wanted to cut rates this year on hopes inflation would cool.
Inflation, however, has gained pace again, driving poverty levels to near 40% and hurting the Peronist government of President Alberto Fernandez, which lags the conservative opposition in public opinion polls ahead of October elections.
Reuters reported earlier this month that central bank board members were discussing another interest rate hike to rein in one of the world’s highest inflation rates. Analysts had estimated the hike would be 200 basis points.
A central bank poll forecasts inflation will end this year at 110%, while J.P. Morgan estimates it could hit 130%.
In a statement, the central bank said it would “continue to monitor the evolution of the general level of prices, the dynamics of the exchange market and the monetary aggregates for the purpose of calibrating its rate policy.”
GRAPHIC: Argentina: inflation spirals (Interactive) https://www.reuters.com/graphics/ARGENTINA-ECONOMY/gdvzymgqypw/index.html