By Jorge Otaola
BUENOS AIRES (Reuters) – Argentina’s central bank could hike its benchmark interest rate as much as 10 percentage points to 91%, a source said on Thursday, as it tries to tame high inflation and steady the peso currency, which has tumbled in black market trading.
With Argentina’s inflation rate running at more than 100%, the country’s central bank hiked the rate last week by 300 basis points to 81% in an effort to get it under control.
“A rise of 1,000 basis points is expected and the Leliq (rate) will go up to 91%,” the source told Reuters, adding: “Today the BCRA (central bank) shakes up the rate.”
A second source, an adviser at the central bank who asked not to be named as the discussions were ongoing, said its board was analyzing another hike, but did not say by how much.
News of the sharp potential rate hike lifted the peso currency in the black market, which strengthened more than 3% to 460 per dollar on Thursday, although it was still over 100% off the official exchange rate of 222 per dollar.
A higher interest rate offers more incentives to savers to keep their funds in pesos, strengthening the local currency, but weighs on borrowing and economic growth.
Argentina, a major global grains and beef supplier, is battling inflation that topped 104% in March, with analysts predicting prices will rise this year by some 110%-130%. The peso currency is also quickly losing value against the dollar.
The South American country has a $44 billion loan program with the International Monetary Fund (IMF), which includes targets to have a positive real interest rate, rein in inflation and build up its scant foreign currency reserves.
(Reporting by Jorge Otaola; Writing by Adam Jourdan; Editing by Alexander Smith)