David Feliba in Buenos Aires
Original Story in the Financial Times
Argentina’s central bank announced an outsized interest rate increase in its latest bid to quell inflation that is running at its quickest pace in decades.
The Central Bank of Argentina on Thursday raised its benchmark Leliq rate 9.5 percentage points to an almost-three-year-high of 69.5 per cent. That followed an increase of 8 percentage points just two weeks ago.
“Prices accelerated in July in the context of greater financial volatility that negatively affected inflation expectations,” policymakers said in a statement.
The bank’s move came shortly before the release of government data showing prices in Argentina — no stranger to high inflation — leapt 7.4 per cent in July from the previous month. That was the biggest monthly increase in two decades, marking an acceleration from the 5.3 per cent pace in June.
Year-on-year, inflation jumped to 71 per cent last month, up from 64 per cent in June, a further sign that imbalances in the economy and financial turmoil are exacting a heavy toll on price expectations.
The sharp increase in consumer prices was driven by household equipment and recreation and culture, according to the nation’s statistics agency.
It is the first inflation data release since President Alberto Fernández appointed veteran politician Sergio Massa as Argentina’s new economy minister. Massa was sworn in as the third official in less than 30 days to hold the reins of an economy facing rampant inflation and declining dollar reserves.
In his initial speech, Massa pledged to restore fiscal order to tame expectations. However, the consensus among private economists and analysts over the past few weeks shows a significant weakening.