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Argentine central bank holds monetary rate at 40% amid continued volatility

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Argentine central bank holds monetary rate at 40% amid continued volatility

Banco Central de la República Argentina on May 22 maintained its benchmark policy rate at an elevated 40% as it continues efforts to prevent the depreciation of the peso from filtering into higher prices.

The decision comes less than a month after the central bank pushed the benchmark rate 1,275 basis points higher in three emergency monetary rate hikes. In maintaining the higher rate, it noted that "increased instability in emerging markets" had made it necessary to keep interest rates higher for "the near future."

The central bank also pointed to higher-than expected inflation in Argentina, with core inflation hitting a 22.4% annual pace in April and high frequency indicators showing that it is staying high in May. The BCRA has an intermediate inflation target of 15% for 2018.

While the regulator said local prices would likely be affected due to the drop of the peso against the U.S. dollar, it noted that many Argentine trading partners also experienced depreciation of their currencies against the dollar, which moderated the impact.

The South American country is negotiating a credit line from the International Monetary Fund, as its government works its way out of an economic crisis.