Argentina raises interest rate by 950 basis points to 69.5%

A man walks past the Central Bank of Argentina in Buenos Aires, July 4, 2022. Prices rose 7.4% in July, pushing annual inflation down to a 20-year high of 71%.

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Argentina’s central bank hiked interest rates by 950 basis points on Thursday as the country struggles to contain rising inflation, which has risen to a 20-year high of 71%, according to new data.

The central bank raised the “Leliq” 28-day benchmark rate from 60% to 69.5%, a rate the bank set just two weeks ago when it hiked the rate by 800 basis points and the government asked its cabinet switched over to install a New Economy “Superminister”.

Fresh inflation data on Thursday underscored the urgency driving economic policy: Prices rose 7.4% in July, beating expectations and pushing annual inflation to a 20-year high of 71%. This month, President Alberto Fernandez’s longtime finance minister resigned, followed by the removal of his successor.

The numbers dashed hopes that this week’s upbeat inflation reports in the United States and Brazil, where prices fell 0.68% to record levels in July, could be good news for the South Cone’s largest economy.

In Mexico, the central bank on Thursday also raised the country’s interest rate by three-quarters of a percentage point to 8.5%, the highest level since the bank’s current regime took effect in 2008. Mexico’s annual inflation rose to 8.15% last month. , a level not seen since December 2000.

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Argentina’s central bank said in a statement that its decision “will help reduce inflation expectations for the rest of the year and consolidate financial and monetary stability.”

The bank also said the decision aimed to bring interest rates closer to positive territory in real terms.

A positive real interest rate is one of the items agreed between Argentina and the International Monetary Fund (IMF) in a recent $45 billion debt deal.

Reducing inflation, which is expected to hit 90% by the end of the year, along with Argentina’s crippling debt and chronic overspending are high on the agenda of the country’s newest economy minister, Sergio Massa, who has also taken power over manufacturing and agriculture.

Massa expressed urgency on Thursday when he announced a plan to give oil companies tax and tariff breaks and cut red tape to boost investment in the country’s Vaca Muerta shale formation.

“Vaca Muerta will be accelerated from today,” said Massa. Argentina raises interest rate by 950 basis points to 69.5%

Joshua Buckhalter

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