May 16, 2017 / 11:13 PM / a year ago

Argentina hikes short-term rate as inflation fight continues

BUENOS AIRES, May 16 (Reuters) - Argentina’s central bank hiked interest rates on its short-term securities on Tuesday, continuing its bid to soak up pesos and rein in stubbornly high inflation even as it buys dollars and checks the strengthening of the peso currency.

The monetary authority sold 448 billion pesos ($28.79 billion) in Lebac securities in its monthly auction, with a yield of 25.5 percent on the short-term 35-day instrument. That was up from a yield of 24.25 percent on 35-day Lebacs in last month’s auction.

The rate hike comes as the central bank seeks to establish credibility for its new inflation targeting regime after data published last week showed consumer prices rose more than 2 percent for the third consecutive month in April.

The bank is targeting inflation of between 12 percent and 17 percent for 2017, though economists see it at 21 percent. Consumer prices rose 40.9 percent in 2016 as center-right President Mauricio Macri allowed the peso currency to float and began unwinding utilities subsidies shortly after taking office.

Analysts say the central bank’s anti-inflationary policies run counter to its perceived aim to curtail peso currency appreciation. The central bank has stepped up its purchases of U.S. dollars in the local foreign exchange market this month after purchasing none in April.

The central bank no longer considers the 35-day Lebac its benchmark interest rate, turning instead to the seven-day interbank lending rate at the start of this year. It hiked that rate to 26.25 percent in April in response to 2.4 percent inflation in March, though it has since chosen twice to hold the rate steady. ($1 = 15.5590 Argentine pesos) (Reporting by Walter Bianchi; Writing by Luc Cohen; Editing by Lisa Shumaker)

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