Argentina is the second country in Latin America with the highest inflation according to data from the International Monetary Fund. By the end of the fiscal year of 2022, inflation ranked in the 95%. However, the government has not been able to find a way to handle this situation that continues to rise month by month, and to cope with the situation it has decided raise interest rates three percentage points, as reported by the Central Bank in an official statement.
Inflation as a multi-causal phenomenon is generating many problems globally. In Europe, the European Central Bank has just increased rates by 50 basis points. In the United States there was also a rise in interest rates, for February the increase was 25 basis points and, according to specialists, the Federal Reserve is expected to increase another 25 points.
Argentina is not the exception, In February, inflation closed at 6.6% and stood at 102.5% year-on-year inflation according to official data.which has led the Central Bank of Argentina to increase interest rates.
The agency’s statement indicates that the rise is 3 percentage points. Before the announcement, the interest rate for the deposit of persons under 10 million Argentine pesos was 75%, with the new announcement this rate rises to 78%, which means 6.5% monthly interest.
As we have indicated in other notes, interest rate increases should be taken as a measure that tends to stabilize the economy. In Argentina, in theory, the value of deposits increases so that the citizen deposits the cash of the currency and thus avoids looking for another currency, such as the dollar, to take refuge from inflation.
It is a fight that the Argentine economy has against the parallel market of the dollar, which has increased its value by 10.69% so far this year, and accumulated inflation so far this year stands at 13.1% according to official data.
The reasons for the increase
The reason that has forced the central bank to raise interest rates is the agreement with the International Monetary Fund. The Argentine government has agreed to maintain interest rates that are real in terms of inflation, or what would be the same as affirming, that savers will not have their money depreciated in a fixed term, therefore, if inflation rises to 6.6%, the rate was brought to 6.5%, which is more attractive than the 6.25% that was in force before the announcement.
In addition, another important fact must be added, The government has just closed another agreement with the IMF to transfer close to 5,300 million dollars in the context of the drought that is plaguing the countryand it is that this condition deprives the Argentine countryside of generating higher production rates to liquidate in export, therefore there is a considerable decrease in the entry of foreign currency, which will probably generate more financial instability.
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