Argentina interest rate seen up 150-350 bps in April after IMF deal

BUENOS AIRES: Argentina’s central bank is likely to hike the benchmark interest rate 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 shift toward positive real interest rates above annual inflation now at over 52% and forecast to hit as high as 60% this year as the war in Ukraine heats global commodities prices.

Argentina’s current interest rate is 44.5%, equivalent to some 54.9% on an effective annualized basis. Seven analysts and traders surveyed by Reuters forecast a rise to between 46% and 48% in April, effectively 57.1% to 60.1% on an annualized basis.

Reuters this month, citing a central bank source, reported that it would raise rates again next month if March inflation was around 5%. The bank has increased the rate three times in 2022 after holding it steady for over a year.

The IMF “understands the rise in rates as an anti-inflationary policy, while the BCRA (central bank) understands positive returns 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 interest rate hikes in April.

Bringing down inflation and bolstering confidence in the local peso currency is key for the major grains exporter to right its embattled economy and build up foreign currency reserves it needs to avoid further defaults down the road.