Argentina’s interest rate rose 150-350 basis points in April after the IMF deal

BUENOS AIRES, March 29 (Reuters) – Argentina’s central bank is expected to hike benchmark interest rates by between 150 and 350 basis points in April, analysts and traders said after the country finalized a $44 billion debt program with the International Monetary Fund.

The South American country has pledged as part of the IMF deal to switch to positive real interest rates above annual inflation now above 52% and forecast to reach as high as 60% this year as the war in Ukraine pushes global commodity prices pushes up.

Argentina’s current interest rate is 44.5%, which is about 54.9% on an effective annualized basis. Seven analysts and traders polled by Reuters are forecasting a rise to 46% to 48% in April, effectively 57.1% to 60.1% on a yearly basis.

Reuters reported this month, citing a central bank source, that it would hike rates again next month if inflation were around 5% in March. The bank raised the interest rate three times in 2022 after keeping it constant for over a year.

The IMF “understands the rate hike as anti-inflationary policy, while the BCRA (central bank) understands positive yields as a reward for staying in pesos and discouraging dollarization,” a bank source said.

A central bank spokesman did not respond to requests for comment on plans for rate hikes in April.

Lowering inflation and boosting confidence in the local peso are key for the big grain exporter to repair its struggling economy and build foreign exchange reserves it needs to avoid further defaults in the future.

Analysts said that recent rate hikes had pushed the reference rate towards positive real territory, but warned that the rate could still be too low as prices rise.

“Renewed pressures from higher commodity prices following the invasion of Ukraine will push headline inflation higher, which is not yet included in the BCRA survey,” JP Morgan said in a note.

“If deflated by our own forecast, the real ex ante policy rate remains in negative territory.”

Reporting by Jorge Otaola; Edited by Adam Jourdan and Jonathan Oatis

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