October 19, 2018 / 8:01 PM / 10 months ago

UPDATE 2-Argentine inflation to hit 2018 peak in Sept-Oct -treasury minister

(Adds Dujovne quote, peso closing level, result of central bank debt sale)

MAR DEL PLATA, Argentina, Oct 19 (Reuters) - Argentine inflation, now at 40.5 percent on a 12-month basis, is expected to peak for 2018 in September and October, Treasury Minister Nicolas Dujovne said on Friday in an address to a business conference in the seaside city of Mar del Plata.

Consumer prices rose by an unnerving 6.5 percent in September alone. The rate of inflation has decelerated over the last 10 days, Dujovne said at the conference.

Consumer price increases have been fueled by a weakening Argentine peso and the government’s fiscal belt-tightening effort, which includes cuts to public utility subsidies. Reduced subsidies of water, electricity and home heating gas have increased the utility bills paid by consumers.

In April investors started rejecting the short term notes issued by the central bank as worries grew over its ability to honor its debts as the country slipped into recession. The confidence crisis prompted a run on the local peso currency.

The peso has risen 13 percent in October to close on Friday at 36.54 per U.S. dollar. But the currency remains 49 percent weaker against the dollar so far in 2018.

“Inflation in the months of September and October will mark the high point for the year, corresponding with the foreign exchange instability that we’ve been through since April,” Dujovne said.

The central bank started propping up the peso at the start of the month by issuing billions of dollars worth of 7-day notes, known as ‘Leliqs’. The issuance of the peso denominated paper at high interest rates has helped mop up excess liquidity that might otherwise seek refuge in safe-haven U.S. dollars.

The bank issued 135.64 billion pesos ($3.7 billion) in Leliqs on Friday at an average interest rate of 72.88 percent.

Reporting by Eliana Raszewski; Writing by Hugh Bronstein; Editing by Sandra Maler

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