Argentina to Keep Expanding Cash Supply at Current 26% Inflationary Pace

Argentina’s central bank plans to keep injecting cash into the economy at the current pace, a move that may further stoke inflation that’s already among the fastest in the world.

The bank, in its 2012 monetary program published yesterday, said it aims to expand the M2 money supply, which includes cash plus checking and savings accounts, by 26.4 percent in 2012. This year it targeted 28 percent monetary growth.

South America’s second-biggest economy should expand (ARGDPYOX) for a 10th straight year in 2012, by between 4.5 percent and 7.5 percent, the bank said.

“The bank is not fighting inflation and there’s a risk of inflation shooting up” if the money supply continues to grow at the current pace, said Fausto Spotorno, an economist at Buenos Aires-based Orlando Ferreres & Asociados in Buenos Aires.

Consumer prices in Argentina rose about 25 percent this year, according to private economists. That’s more than any major global economy except Venezuela as President Cristina Fernandez de Kirchner increases government spending to spur consumer demand and boost local production. The government says inflation was running at 9.5 percent in November.

“The level of economic activity in 2012 will continue being anchored by a robust internal market” sustained by higher employment, wealth redistribution and public and private investment, the central bank said in the nine-page report.

The central bank, which stepped up dollar purchases in recent weeks to absorb revenue the government is forcing exporters to repatriate, said it plans to buy $9 billion in the foreign exchange market in 2012 to prevent excessive peso volatility.

Policy makers have been able to offset decade-high capital flight of $8.4 billion in the third quarter by increasing money supply (ARVAM2PS), which grew 5.9 percent in the 30 days ended Dec. 16, the fastest pace since January, according to central bank data. The bank targeted M2 to reach 322.4 billion pesos ($75 billion) by yesterday.

To contact the reporter on this story: Eliana Raszewski in Buenos Aires at eraszewski@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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