Argentina to Hike Rates in Bid to Stem Inflation Crisis

(Bloomberg) -- Argentina will unveil a set of emergency measures in a bid to stem additional currency losses, including a large increase to its key interest rate, as inflation spirals out of control in the run up to presidential elections, according to officials at the Economy Ministry and the central bank.

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The monetary authority will raise its benchmark rate by 600 basis points to 97% on Monday while boosting intervention in the foreign exchange market, the officials said, asking not to be named before measures are formally announced by Economy Minister Sergio Massa. Policymakers are struggling to contain a selloff in the peso, which in parallel markets has lost 35% of its value against the dollar so far this year.

The government intends to obtain more international support for its dwindling foreign reserves by speeding up deals with the International Monetary Fund, China and Brazil through the BRICS group, which also include Russia, India, China, and South Africa, one of the officials said.

The IMF didn’t immediately respond for a request for comment outside of business hours.

Read More: Argentina April Inflation Surged to 109% Amid Peso Selloff

Inflation and a record drought are expected to push Argentina into a steep recession this year before a presidential vote in October. The race appears wide open with top leaders from the two key coalitions already bowing out. The crisis is also boosting the election bid of outsider candidate Javier Milei, who proposes replacing the peso with the US dollar as Argentina’s national currency to squash inflation.

Negative Reserves

While the IMF has been asking Argentina to increase interest rates, it has discouraged the government from spending dollars from its reserves to intervene in currency markets. By some private analysts’ estimates, the central bank’s net cash reserves are currently in the red.

Read More: Argentina Is Going Broke to Stall a Full-On Currency Collapse

The measures come after April inflation data published Friday afternoon showed consumer prices rising 108.8% from a year ago, above market expectations and the fastest pace since 1991.

The monetary authority raised rates in late April by 10 percentage points to 91%.

(Updates with background starting in fourth paragraph.)

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