Argentina central bank hikes key rate to 133% as inflation worsens

Updated Thu, October 12, 2023 

The facade of Argentina's Central Bank is pictured in the financial district of Buenos Aires

By Jorge Otaola

BUENOS AIRES (Reuters) -Argentina's central bank raised the country's benchmark interest rate to 133% from 118% on Thursday as inflation data came in worse than forecast, 10 days before voters go to the polls to choose a new president amid a deepening economic crisis.

The hike came shortly after September inflation figures were released, landing above expectations at 12.7% monthly and 138% annually, worsening surging prices that have sapped wages and savings and pushed two out of every five people in Argentina below the poverty line.

Argentina's central bank is struggling to keep the benchmark interest rate in line with inflation expectations, with a central bank poll of analysts later in the day forecasting inflation to end the year at more than 180%.

Some commentators questioned whether the latest hike was too late amid a worsening economic scenario.

"It is no longer useful to raise the rate, expectations have gone away and raising it at this time is not going to contain the flight from pesos to dollars," a national private banking manager said on condition of anonymity.

The impacts of inflation has been worsened by the government's near-18% devaluation of the peso in mid-August, which coincided with the prior central bank hike, where it increased the interest rate from 97% to 118%.

A rapid freefall of Argentina's peso has since followed, with the currency surpassing the psychological barrier of 1,000 pesos per U.S. dollar earlier this week as the country prepares to vote in general elections scheduled for Oct. 22.

Voters will be choosing who to succeed outgoing leftist President Alberto Fernandez, with radical libertarian Javier Milei seen as the front-runner due to his shock first-place showing in the August primary.

Milei, who is seeking to shut the central bank and dollarize the economy to tame inflation, recently recommended depositors avoid renewing bank holdings in pesos, arguing that the peso does not even serve as "excrement."

The central bank's rate change on Thursday came after a last-minute decision not to raise the rate to 145% "following a leak," after Reuters reported the higher figure, citing a source close to the bank.

(Reporting by Jorge Otaola; Writing by Brendan O'Boyle and Isabel Woodford; Editing by Anthony Esposito, Richard Chang and Jamie Freed)

Argentine peso hits record low as Milei says 'it can't be worth excrement' while businesses oppose dollarization

Filip De Mott
Tue, October 10, 2023

Nora Mazzini

The Argentine peso sank 10% Tuesday in the parallel black market to a record low of 1,050 per dollar.


Presidential frontrunner Javier Milei urged Argentines not to save in peso-denominated instruments.


But most of Argentina's corporate leaders disapprove of full dollarization.

As the Argentine presidential election draws closer, frontrunner Javier Milei's latest comments sent the peso plummeting against the US dollar.

That's as the libertarian candidate has campaigned on a platform that includes dollarizing the Argentine economy, with plans to scrap the peso entirely.

"The peso is a currency emitted by Argentine politicians, so it can't be worth excrement, because those pieces of trash don't even work as fertilizers," he said Monday, warning citizens to not hold savings in the local currency.

The peso sank 10% Tuesday in the parallel free-floating black market to a record low of 1,050 per dollar. That's compared to the official exchange rate, which has been fixed at 365 pesos to the dollar since August.

But while Milei leads in polls ahead of the October 22 election, not everyone is onboard with his idea to abandon the peso.

Business leaders surveyed at a Mar del Plata corporate summit were largely opposed to full dollarization. Of 125 respondents, only two were in favor of the move, according to Reuters.

Instead, most hoped to see the peso stick around, as a way to maintain monetary autonomy and exchange rate competitiveness. If Argentina relied only on the dollar, it would cede monetary control to the US Federal Reserve.

For this reason, 80% of respondents showed preference for a Patricia Bullrich presidency. The conservative candidate is Milei's leading opponent, and has proposed dollarizing Argentina, but without giving up the peso. Only 7% of those surveyed favored Milei.

Both proposals are a response to economic turmoil that is widespread in Argentina, burdened by a 134% inflation rate and interest rates at 118%.

In response, dollar use has sprouted among Argentines, with some firms in the country partially paying salaries in the more stable greenback.