Argentina economy shrinks in April due to drought; central bank holds rate

BUENOS AIRES: Argentina’s economy shrank in April for the first time in more than a year, government data showed on Tuesday, while the central bank held its policy rate stable at 40 per cent in the first rate decision since a shakeup in its leadership.

The 0.9 per cent contraction in April from the same month a year ago came as the key agriculture sector plummeted 31 per cent, according to government statistics agency Indec. That was a consequence of the country’s worst drought in years, which shriveled the country’s soy and corn crops.

It was the first negative monthly reading since February 2017. The economy shrank 2.7 per cent in April from March.

Argentina is the world’s top exporter of soy meal and soy oil and one of the top shippers of corn and raw soybeans. Treasury Minister Nicolas Dujovne has said the drought will reduce 2018 growth by 1.5 percentage points of gross domestic product (GDP).

After expanding nearly three per cent in 2017, economists have cut their expectations for growth in Argentina this year due to the drought and a run on the peso currency that triggered a financial crisis, prompting the country to turn to the International Monetary Fund for financing.

The central bank said in a statement explaining its policy rate decision that GDP would likely expand one per cent in 2018, due in part to “the extraordinary drought that the agricultural sector suffered.”

In its first monetary policy statement since Luis Caputo took over as governor earlier this month, the bank said it expected consumer prices to rise by less than 2 per cent per month between July and September, down from 2.1 per cent in May and 2.7 per cent in April. — Reuters