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Argentina raises interest rates to 69.5%, while inflation hits a 20-year record

(Reuters) –– Argentina’s central bank raised its benchmark interest rate by 950 basis points on Thursday as the country struggles to curb runaway inflation that has soared to 71%, a 20-year high, according to new data.

The central bank raised the benchmark rate from 60% to 69.5% for 28 days, just two weeks after making an increase of 800 basis points and the government reshuffling its cabinet to install a new “super minister”. “On financial matters.

New inflation data released Thursday underscores the urgency behind economic policy. Prices rose 7.4% in July, above expectations. And, as a consequence, they pushed annual inflation to a 20-year high of 71%. The country also experienced the resignation of Economy Minister Martín Guzmán, who led the portfolio from the beginning of Alberto Fernández’s government, followed by the resignation of his replacement Silvina Batakis shortly after.

argentina interest rates

(Credit: LUIS ROBAYO/AFP via Getty Images)

The figures dashed hopes that upbeat inflation reports in the United States and Brazil released this week could bode good news for the Southern Cone’s largest economy.

In Mexico, the central bank also raised the reference interest rate on Thursday by 0.75% to 8.5%. This is the highest level since the bank’s current regime was implemented in 2008. Mexico’s annual inflation soared last month to 8.15%, a level not seen since December 2000.

In a statement, Argentina’s central bank said its decision “will help reduce inflation expectations for the remainder of the year and consolidate financial and exchange rate stability.”

The bank added that the decision aims to bring rates “into positive territory in real terms.”

A positive real rate is one of the points that Argentina and the International Monetary Fund (IMF) agreed on in their recent US$45 billion debt negotiation.

argentina interest rates

(Credit: Tomas Cuesta/Getty Images)

Reducing inflation, which is expected to reach 90% by the end of the year, as well as Argentina’s crippling debt and excessive spending, are part of the priorities of the super minister of economic affairs, Sergio Massa, who also assumed powers over productive development and farming.

This Thursday, Massa expressed urgency by announcing a plan to grant fiscal and customs benefits to oil companies and reduce some red tape in an effort to accelerate investments in the Vaca Muerta shale deposit in the country.

“Vaca Muerta accelerates from today,” said Massa.

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