As the peso continued its steep depreciation this morning, the Central Bank (BCRA) announced a hike in its benchmark interest rate to 60 percent and committed to freeze it until December, in an effort to curve the trend. Its goal is to attract investors – banks, investment funds, individuals – and deter them from further keeping on buying dollars and pushing the price up.
Euro area: 0%
— The Spectator Index (@spectatorindex) August 30, 2018
“In response to the current situation concerning the exchange rate and considering the risk it entails for domestic inflation, the monetary policy committee unanimously decided to hike the benchmark interest rate to 60 percent. Moreover, to guarantee the monetary conditions will maintain its contracting trend, the BCRA commits to not decrease the rate until the month of December,” indicates the release.
The rate was at 45 percent earlier this month, 40 in May and below 30 in April, before the crisis began.
El BCRA aumenta la tasa de política monetaria al 60% e incrementa en 5 puntos porcentuales los encajes, integrables con pesos, LELIQ o NOBAC. pic.twitter.com/Wgw6Zr8Kph
— BCRA (@BancoCentral_AR) August 30, 2018
Moreover, the entity led by Luis Caputo hiked by 5 percentage points the encajes – the amount of money banks are required to hold on to and not operate with – for all deposits in pesos, starting on September 1. The encajes for regular deposits in pesos, then, will increase from 31 to 36 percent, and the ones for fixed-term deposits (plazos fijos) from 25 to 30 percent. This measure aims at preventing banks from using a large percentage of its available funds in pesos to keep on getting rid of their pesos, thus further contributing to the depreciation.
The BCRA indicated that nonetheless banks will be able to use their encajes to subscribe LELIQs or NOBACs, treasury notes in pesos, to prevent the deposits from losing their worth as a result of inflation and depreciation.
At the moment this article is being written, the exchange rate at the Banco Nación, which has the lowest rate of the market – is at AR $38.1 per US dollar, AR $1.5 more – 10.7 percent – than yesterday.