• Amount banks must keep on deposit raised by up to 2.5 ppts
  • Measure aimed at soaking up excess pesos to curb inflation

Argentina’s central bank raised reserve requirements by as much as 2.5 percentage points as it seeks soak up excess pesos and rein in inflation of about 40 percent.

The amount banks must keep on deposit at the central bank was raised 1.5 percentage from about 13 percent for time deposits and 2.5 percentage points from about 17 percent for current accounts, the central bank said in an e-mailed statement. Banks will need to make a similar increase in July, the bank said.

Central bank President Federico Sturzenegger began lowering benchmark interest rates that went as high as 38 percent in March as concern of an economic contraction grows amid companies’ investment cuts. Raising reserve requirements would allow the bank to continue reducing rates without abandoning its monetary contraction plan, said Maximiliano Castillo, director of Buenos Aires-based consultancy ACM

“It’s another way of sterilizing pesos without having to raise rates so high,” Castillo said by phone from Buenos Aires. “It complements the high rates.”

Argentina’s central bank cut interest rates in its weekly note sale by the most this year as it said that several indicators showed that underlying inflation continues to slow. The bank excluded foreign investors from participating in the auction as a surge in dollar inflows causes the peso to gain, dimming the outlook for exports.

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