On Thursday, the central bank in Argentina hiked up their interest rate, following the footsteps of some of the other global central banks in order to stave off the surging inflation in the country that has gone beyond 60%.
The central bank decided to boost the benchmark Leliq rate by the most in three years. They decided to hike up the interest rate by 300 basis points, which is nearly 52%. This is because the South American country is dealing with soaring prices, the rise in perception of financial risk and to save the local peso currency that has taken a hard hit.
The Fight Against Inflation
The country is currently dealing with one of the highest inflation levels recorded all over the world. The move by the central bank in Argentina comes after interest rates have been hiked by its giant neighbor Brazil, along with numerous countries in Europe, in order to quell the rising prices in their regions. The central bank stated that the increase in interest rates could actually help encourage people to save in pesos. The bank also added that it would continue to make adjustments to its monetary policy in order to combat inflation.
Initially, it had started with rising oil prices in the wake of the Russia and Ukraine conflict. But, it did not take long for global inflation to spread out to everything else, from services to food. As a matter of fact, some countries in the world have seen their inflation rate reach the double digits. Argentina had already been working on rebuilding its foreign currency reserves that had gotten depleted. The grains exporter saw its prices go up by 5.1% in the month of May alone.
Many experts have already anticipated that annual inflation in the South American country could climb to 70%, which would weigh down salaries and savings. On Thursday, government sources stated that they had expected the annual inflation rate to be between 52% and 62%, which would be below the forecasts by analysts. However, it would certainly be above the forecasts that had been agreed in a recent deal with the International Monetary Fund (IMF).
The central bank had stated that it expected inflation to decline in the country gradually, after hitting its peak in March.
Analysts Don’t Think it Will Work
According to market analysts, they believe the sharp hike in the interest rates by the central bank shows that they are desperate to bring the inflation in the country under control. They also said that the bank does not want investors to abandon peso-dominated securities.
Other experts added that it was unlikely that the central bank would be able to come out ahead because people have already lost the confidence they had in the peso. Plus, not many people believe it will be possible to bring down prices so quickly, particularly after inflation has been high in the country for quite a while. Since the country exports corn, soy and wheat, Argentina has attracted attention as there is a supply shortage globally.