June 24, 2016 / 3:42 PM / in 2 years

UPDATE 3-Argentina finmin sees inflation slowing, says growth depends on Brazil

(Recasts; adds quotes, byline, Argentine markets))

By Dion Rabouin

NEW YORK, June 24 (Reuters) - Argentina’s annualized rate of inflation was likely 40 percent to 42 percent through May, but should begin slowing in June with a return to growth also on the horizon, Finance Minister Alfonso Prat-Gay said on Friday.

Prat-Gay, who was appointed by President Mauricio Macri, said in an address to investors in New York that the government was “very confident in the second half of the year.”

“Inflation will fall, the economy will bloom,” he said.

A proponent of free markets, Macri was inaugurated in December and moved quickly to begin dismantling the economic controls favored by his predecessor, Cristina Fernandez.

Inflation in the country was propelled higher when Macri lifted currency controls, allowing the Argentine peso to devalue by 30 percent.

“We think the dirty work is mostly done,” Prat-Gay said, calling Macri “very brave” to spend his political capital with unpopular economic austerity measures.

Monthly consumer prices rose 4.2 percent in May, the Indec statistics agency said last week, and Prat-Gay said inflation would slow to 2 percent to 2.5 percent in June.

May was the first month for which official inflation data was published since Macri took office, though annual figures were not released.

Prat-Gay also said the upset caused by Brexit, Britain’s vote on Thursday to exit from the European Union, came at a time of increasing stability in Argentina.

“It seems to us that (Brexit) is more an issue of distortions or disruptions around the developed world than it is in our region, or in particular Argentina,” Prat-Gay said.

“We don’t want to get too carried away in saying that Argentina is a beacon of stability, but that is probably one way of looking at it,” he added.

Argentine stocks were down 3.6 percent on Friday while the currency weakened 2.2 percent against the dollar.

Prat-Gay said Argentina needs investment to restore growth. The country’s corporate debt to gross domestic product ratio is around 15 percent, less than around 60 percent in most of Latin America. The investment to GDP ratio is also low at less than 20 percent, he said.

“This is an economy that has ceased to invest over the last five years. Once we get the investment engine started again, that will create a boom,” he said.

Still, Prat-Gay said risks included an ongoing recession in Brazil, which would knock 1 percent to 1.5 percent off of Argentina’s gross domestic product.

“Brazil is the different between growing and not growing for the first year of our administration. It’s really critical,” he said. (Writing by Hugh Bronstein and Caroline Stauffer; editing by Phil Berlowitz, G Crosse)

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