Argentina Raises Rates for Central Bank Notes After Devaluation

Argentina’s central bank increased interest rates on notes to be auctioned Jan. 28 after the peso plunged 15 percent this week.

The monetary authority will offer a fixed rate of 25.89 percent on peso-denominated notes due in 98 days, a 6 percentage-point increase from the rate offered this week, it said in an e-mailed statement. The bank is also offering dollar-denominated notes to yield between 2.5 percent and 4 percent to financial entities holding foreign-currency deposits.

Argentina began devaluing the peso on Jan. 22, allowing it to fall the most since 2002, in a bid to stem a financial crisis and a drain in foreign reserves amid annual inflation running at an estimated at 28.4 percent. The central bank is trying to boost deposit rates and keep funds in the banking system, according to an official who asked not to be identified because he isn’t authorized to speak publicly on policy plans.

“It’s a step in the right direction, although the amount is not enough,” Ezequiel Aguirre, a strategist at Bank of America Corp., wrote in an e-mailed response to questions. “Real interest rates are still negative.”

Policy makers should allow the so-called badlar rate, which banks pay for 30-day deposits of more than 1 million pesos, to double to 40 percent while the peso slides to 9 per dollar in order to stabilize demand for pesos, Aguirre said.

The badlar will tend to rise as the central bank works to reduce negative interest rates, the official said. The benchmark deposit rate closed at 21.25 percent on Jan. 23.

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