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Goldman Sachs On Latest BCRA 950BP Hike

ARGENTINA
  • The BCRA raised its benchmark interest rate by 950 basis points on Thursday as the country struggles to keep a lid on spiralling inflation that rose to a 20-year high of 71%, according to new data. Argentina’s central bank raised its benchmark Leliq rate to 69.5%, representing the largest hike in almost three years.
  • Recap of Argentine Inflation Data:
    • Argentina July Consumer Prices Rise 7.4% M/m, Est. +7.15% (BBG)
  • Argentina July Consumer Prices Rise 71% Y/y, Est. +70.7% (BBG)
  • Goldman Sachs On The Decision:
  • At the new level the real ex-ante policy and deposit rate are slightly positive (the latest central bank survey shows twelve-month ahead inflation expectations of the top-10 forecasters increased to 94.1%), an important step towards monetary and financial normalization and a key component of the country’s program with the IMF.
  • Overall, the decision by the BCRA occurs after the new Finance Minister, Sergio Massa, announced last week a set of measures and policy principles to deal with the most pressing macro and financial challenges and imbalances facing the Argentine economy: annual inflation accelerated to 71.0% yoy in July and is rapidly trending towards 80%; the non-official exchange rate is trading at a 117% spread over the official rate; and central bank reserves are running low.
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