The Argentina central bank is on an aggressive streak to reduce the country’s rampant inflation. A new interest rate hike to 49% confirms that there is still much work. However, it is the fifth-rate rise this year, putting the country on track to go twelve for twelve in 2022.
Argentine Interest Rates Spike
The financial situation in Argentina has been problematic for multiple years. Inflation is a near-daily occurrence, and it is very tough to turn the ship around. For BCRA, the Argentina central bank, there is one crucial weapon: increasing interest rates. The institution hiked rates for the fifth time in 2022 to a stunning 49%. Many people would like a 49% interest rate, yet that is unfeasible in countries where inflation is less of an issue.
Furthermore, this latest hike puts the effective annual rate at 62%, a strong uptick from 55%. As consumer prices continue to rise in the country – and peaked at levels not seen since 1992 – something has to give. The central bank can’t do much else but hike the interest rates whenever possible.
Going down this rate can positively impact Argentina’s inflation rates. The BCRA is confident inflation will decelerate gradually in the coming months, although it is too early to conclude. There is much financial uncertainty globally and the overall economic outlook remains very bleak. Stability in commodity prices and markets may seem plausible today, but it doesn’t take much to send everything into a downward spiral again.
Moreover, the rate hike is a necessary step for Argentina to keep its agreement with the IMF. Both parties struck a $44 billion agreement but forced Argentina’s government to keep borrowing costs above inflation. Increasing interest rates will take care of that aspect, even if it may not address or resolve the underlying issue directly.