Argentina to Hike Interest Rates to 75% as Inflation Nears 100%

[Hydrogen]

Argentina’s central bank raised its benchmark interest rate Thursday in a bid to prop up its currency and curb inflation nearing 100%.

The central bank boosted its benchmark Leliq rate by 5.5 percentage points to 75%, according to an emailed statement. The move comes a day after data showed consumer prices jumped nearly 79% a year in August, the fastest pace in 30 years. It was the bank’s ninth rate hike this year.

The bank’s board of directors also added in the statement that it intends to reduce the level of short-term debt held by the central bank next year, but didn’t provide more specifics.

Earlier this week, central bank President Miguel Pesce and Economy Minister Sergio Massa affirmed, in a meeting with International Monetary Fund Managing Director Kristalina Georgieva their commitment to implement the country’s $44 billion deal with the IMF. A key element of the accord includes keeping interest rates above the rate of inflation.

What Bloomberg Economics Says

“The new rate hike catches up with the rise in current and expected inflation — but may not be sufficient to tame inflation or boost reserves. The substantial uncertainty on inflation and the persistent risk that the peso may soon see a sharper depreciation undermine the ability of the new rate to convince households to save or investors to have a position in pesos.”

—Adriana Dupita, Latin America economist

Economists surveyed by the central bank forecast inflation will accelerate to 95% by the end of the year.

Central banks across Latin America have raised rates this year to combat high inflation, but prices have continued to stay hot as high levels of all-cash workers and businesses make monetary policy less effective than in developed economies. Argentina’s central bank made incremental rate increases early in the year but over the past three months has ramped up its hikes, with a combined 23 percentage point increase since July.

Pesce and Massa face added pressure after they allowed a devalued exchange rate for the month of September for producers of soy — the nation’s biggest export — in a bid to replenish the country’s dwindling international reserves.

The central bank has been propping up the official peso rate, currently at 143 per dollar. The blue-chip swap rate, an implied exchange-rate based on the difference in prices between Argentine stocks and their American depositary receipts, stands at 297 per dollar.

https://finance.yahoo.com/news/argentina-hike-interest-rates-75-200117136.html

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Here we see an interesting approach to inflation:

Earlier this week, central bank President Miguel Pesce and Economy Minister Sergio Massa affirmed, in a meeting with International Monetary Fund Managing Director Kristalina Georgieva their commitment to implement the country’s $44 billion deal with the IMF. A key element of the accord includes keeping interest rates above the rate of inflation.

When I read things like this, I always wonder if these policies will eventually wash up on american shores.

Banks lose money on loans with lower rates than inflation. Hiking rates higher than inflation, could eventually become necessary to the survival of the banking industry. This is a point I have not seen anyone addressing. Our level of discussion on these topics appears to be somewhat lacking in depth. There could be a desperate need for content that covers these points and some of the basics. If it can be written in a way that is easy to understand and helps people to feel better about reading and learning.

I see the question being posed: how bad will the american inflation get? On a level between argentina or the zimbabwe dollar, its anyone's guess.

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[lumbanrang]

75% for interest? that's pretty crazy, that's a very high interest rate for a lot of people, just imagine when buying a house with such a high interest rate, it means that people almost pay 1 times what they borrow. I know the purpose of raising interest rates is to control inflation, but such high interest rates are insane.

[Mauser]

I see the question being posed: how bad will the american inflation get? On a level between argentina or the zimbabwe dollar, its anyone's guess.

I don't think we can compare the inflation in Argentina with USA. 100% inflation in a year is insane and while increasing the interest rate is necessary I don't think this is going to do much. USA is at the start of rising inflation periods and reacted very aggressively to fight inflation. You can see the difference between Europe and USA, with ECB being very cautious and afraid of interest rate hikes. The US Dollar is now on its 20 year high compared to the Euro. The strong currency means that imports are less expensive for Americans and inflation should fall. A more interesting comparison for Argentina would be Turkey, their inflation is at 80% at the moment, but they are not increasing interest rates. Turkey is being unconventional and lowers their interest rate instead. It would be nice to see which country gets their inflation under control better.

[theskillzdatklls]

Lol. Argentina is always such a joke when it comes to fiscal policy. They've gone bankrupt at least 6 times to my knowledge since 1970 w/o looking it up.

To curb their inflation properly, they'd probably actually have to hike rates to say 150% while also undergoing some amount of austerity.

Either that or just abandoning their failed currency projects and either adopting the $USD or $BTC or something but then the government wouldn't be able to scam their population each year.

[naira]

I will focus on the question how bad is US Inflation? and whether America can approach a crisis like Argentina or Zimbabwe. Let's trace from the beginning where this point will lead. An increase in interest rates is an action taken to counter rising inflation. In general, that's what the US does because of its economic concept that focuses on the essence of the dollar.

Can we link the US crisis to Russia actions against Ukraine? Of course, because I see it as the start of an economy being beaten by Russia that really wants to beat the US and sees it bowed. Quoted from local news referring to the statement Chief Economist at Comerica Bank Bill Adams:
"Inflation remains high in the United States, reflecting global food and energy shortages caused by the Russo-Ukrainian conflict, resulting in high domestic prices for housing, rent, and medical care."

Don't think it's all unrelated, and don't think Russia didn't plan this in the first place.

Will this inflation bring America to the brink of recession?
It probably won't be that fast, as there's still around 2.3% growth at the end of the year which keeps the US a bit on the defensive. Even after that, I don't know for sure. About the US going into a deeper chasm like Argentina or Zimbabwe. Oh imagine if that happens, the bad impact will be felt by all countries that have entrusted their economy to the US Dollar. Everything is a mess and well the global crisis depends on how the US handles all these tests. If so, who stands? The answer is that Russia and its allies Russia didn't plan this parliament from the start.

Go deeper before Russia deals a blow to the US, namely the Pandemic. Do you think when we see all countries experiencing a clean crisis is just a disaster? What if you look at it from a different point of view? Where did the covid 19 pandemic start? and which country was the first to announce globally to the world that they were free of Covid 19? Chinese isn't it? but look at the impact, other countries are even involved in continuing to carry out such a long lockdown driven by data from hospitals. What if the data has in fact been bribed so that the pharmaceutical industry runs on target in the market? Mainstream media process it all so that we swallow the news that is released.

[kryptqnick]

I really don't see the link between the troubles Argentina is having and how it could be devastating for the USD. If you look at historic charts, inflation has been a big problem in Argentina for a long time. It's not a strong economy, and the currency is especially weak, unfortunately. The US is a very strong economy, the USD is in high demand, and while it does lose more value than usual, it's very far from the case of Argentina. The IMF requirement is put in place to ensure that they don't lose because of the inflation, which IMO makes perfect sense and should work. I don't see how that would hurt the USA.

[BIT-BENDER]

I am not from Argentina but I understand this measures the Argentina  government are taking from experiences and in all my experience on it this is never an ending solution to an inflation situation.
I personally see it as unfair for government to try rescue the financial issues of the country by trying to make life even more hard for its citizens.

Inflation is currently a global situation that many countries are having right now. Just recently my local currency Naira just went down and it's now $1 for 719 Naira (my local currency) and yet no measures has been taking in tackling this situation. I am no economical guru but I think any measure that needs to be taking should be one that doesn't worsen the situation too much and has long term efficiency.

[South Park]

Lol. Argentina is always such a joke when it comes to fiscal policy. They've gone bankrupt at least 6 times to my knowledge since 1970 w/o looking it up.

To curb their inflation properly, they'd probably actually have to hike rates to say 150% while also undergoing some amount of austerity.

Either that or just abandoning their failed currency projects and either adopting the $USD or $BTC or something but then the government wouldn't be able to scam their population each year.

Personally I do not even remember how many times this has happened so I will have to take your word on this matter, what I cannot understand is how is it possible the Argentinians keep picking the same type of politician over and over again? Have they not understood that any politician promising them free stuff is nothing more but a liar that is planning to pay for this by printing money? They need a leader which is willing to say no to printing money and maybe that is willing to abandon their own currency, as it does not seems as they can be fiscally responsible at all.

[goaldigger]

75% for interest? that's pretty crazy, that's a very high interest rate for a lot of people, just imagine when buying a house with such a high interest rate, it means that people almost pay 1 times what they borrow. I know the purpose of raising interest rates is to control inflation, but such high interest rates are insane.

They are left with no choice, they are dealing with high inflation and if they can’t do something about this they may ended up the same with Venezuela. No one will borrow with such huge amount of interest, and that could lessen the money in circulation which can help to at least lower the inflation rate. This will be a long term problem for Argentina, I hope they can survive on this. With regards to relation of this to US, I think USA is already doing their best to avoid on the same situation, imagine inflation rate lower than 10% and yet they are increasing the interest rate aggressively, I’m pretty sure they can lower the inflation in just a year.

[edgycorner]

PTSD time for Argentina lol
Their inflation was almost 3000%+ in 1989, and it's already at around 100%

It is understandable that the central bank of Argentina would want to take action in order to curb inflation and prop up their currency. However, a 5.5 percentage point increase in the benchmark interest rate is a very aggressive move that may not be sustainable in the long run.
Additionally, the central bank's decision to reduce the level of short-term debt held by the central bank next year could further destabilize the economy if not done carefully.

Anyways, they are used to it lol

[dothebeats]

Wow that is extremely high. I know a lot of countries are already bracing for this ongoing high inflation rate around the world, but not at that rate which Argentina expects it. That's an extremely tight measure that they are implementing, but when your country is cursed with extremely high inflation over the past few decades, it is understandable why their central bank already called for this drastic measure. I thought we have it hard here in the Philippines, but seeing other countries' situation, I guess I'm still lucky to be here right now.

[sunsilk]

This is the hard truth with those countries dealing with high inflation rates. They have to keep up their interest rates so that at least they can lessen down the effect onto them.

With the interest rate hike made by the FED, this is really hitting a lot of countries. I guess majority of the countries in the world have to keep up with it because the value of their local currencies are also going down.

I've seen some videos in Argentina that tackles about interest rates and they really are having that hard time to keep with their finances. Going abroad and earning dollars is what of those people have kept in their mind to deal this high inflation rate they experience.

[Gyfts]

...

This sums up exactly why central banks shouldn't be interfering with free market forces. It becomes a balancing act until a correction happens and the central banks can't control the economy anymore. You're in for much less pain if you take a hands off approach, but of course, that would mean the government can't put their thumbs on the scale in order to enrich themselves.

When I read things like this, I always wonder if these policies will eventually wash up on american shores.

Banks lose money on loans with lower rates than inflation. Hiking rates higher than inflation, could eventually become necessary to the survival of the banking industry. This is a point I have not seen anyone addressing. Our level of discussion on these topics appears to be somewhat lacking in depth. There could be a desperate need for content that covers these points and some of the basics. If it can be written in a way that is easy to understand and helps people to feel better about reading and learning.

I see the question being posed: how bad will the american inflation get? On a level between argentina or the zimbabwe dollar, its anyone's guess.

The inflation reports for USD suggest that it'll come down, but it will be a slow and painful burn for USD holders. The U.S. has a economy, and equally as important a strong military, so you won't be seeing the federal reserve having to hike up interest rates to absurd levels any time soon. That's not to say it couldn't happen. I've long said USD is a sinking ship. It just won't sink today.

[Don Pedro Dinero]

I don't recall that we have anyone from Argentina on our local board, but it would be interesting to get their opinion on this. I have met a few Argentines and they all talk shit about the various governments there, although considering that they had to leave the country to make a living, if we were to ask someone who lives there, maybe the opinion would be different.

What is clear is that by a multitude of indicators, if Argentina is not a failed state, it is very close.

It is not just inflation, but economic policies in general that have been in place for a long time. We have to bear in mind that just over a century ago it was the richest country on earth where many Spaniards emigrated:

'Argentina began the 20th century as one of the wealthiest places on the planet. In 1913, it was richer than France or Germany, almost twice as prosperous as Spain, and its per capita GDP was almost as high as that of Canada.'

Introduction to Argentine exceptionalism

In 1895 Argentina Had the World’s Highest GDP Per Capita: What Went Wrong?

[2stout]

Wow, seem like every since the 1st military coup, Argentina hasn't quite gotten back to that same footing economically.  With inflation nearing 100% and interest rates set to hit 75%, appears the central bank is failing the people, won't be surprised when Bitcoin does eventually take off there.

[sunsilk]

This is the hard truth with those countries dealing with high inflation rates. They have to keep up their interest rates so that at least they can lessen down the effect onto them.

With the interest rate hike made by the FED, this is really hitting a lot of countries. I guess majority of the countries in the world have to keep up with it because the value of their local currencies are also going down.

I've seen some videos in Argentina that tackles about interest rates and they really are having that hard time to keep with their finances. Going abroad and earning dollars is what of those people have kept in their mind to deal this high inflation rate they experience.

The whole world is in chaos and I am not sure how the world will be coming out of it is going to happen
Because I dont see it happen anytime sooner in the coming days. Neither in any part of the world

Those countries like Argentina that are in high inflation, they will have a really difficult time of doing it.

Maybe a reset will do? But I don't think that's going to be an easy thing for them. Like your concern that with things happening in the world, it's making it more difficult for them to recover.

In the coming days, it's hard to foresee it but I believe that there will be a time that shall end it or if not the end, at least minimize its effect.

[stompix]

I see the question being posed: how bad will the american inflation get? On a level between argentina or the zimbabwe dollar, its anyone's guess.

To be between Argentina and Zimbabwe would mean first going beyond Argentina's inflation which is right now at:

BUENOS AIRES, (Reuters) - Argentina's monthly inflation blew past forecasts at 7% in August, and soared to nearly 80% from a year earlier, a government agency reported on Wednesday, despite efforts by officials and central bankers to curb spiraling prices.

By comparison, Us inflation is barely 8.2% YoY and only 0.1% month on month.

And all this should be happening with oil crashing at 78$ per barrel, the lowest level since January 10th? Nope! 
Btw, wasn't Argentina one of those countries that would join the BRICS block and re-establish the new world order or some other Russian garbage propaganda?

Personally I do not even remember how many times this has happened so I will have to take your word on this matter, what I cannot understand is how is it possible the Argentinians keep picking the same type of politician over and over again? Have they not understood that any politician promising them free stuff is nothing more but a liar that is planning to pay for this by printing money?

If you're not a socialist and a populist you have no chance of getting elected and run your mandate, simple as that, desperate people will vote for the one that is promising them he will snap his fingers and everything will be better, not for the guy with a plan that tells them the obvious, getting back on track will require sacrifices and a ton of work! So in 2922 aliens will still be puzzled about how to fix Argentina!

[be.open]

Anyways, they are used to it lol

Yep, Argentina is a unique country in this regard, it seems that in their recent history there have already been at least half a dozen defaults. I don't feel comfortable quoting myself.

All economies of the world are divided into developed, developing, Japan and Argentina.

[el kaka22]

It is obvious that banks would be losing money if they were giving out loans and that was all they do, but they invest into companies, companies which arrange their prices according to inflation and make profit based on that, last year's 100 million can't be accepted again this year, this year you need 200 million profit to stay the same, because it has 100% inflation. This is why it is not because of that, but because they want people to withdraw money from the markets.

If the interest rate is high enough, we all put our money into interest, and when we do that then there are less money in the markets and that means we are going to end up with more valuable money due to scarcity.

[Leviathan.007]

God that's a lot and this 70 percent can be just a number when you think that's an inflation rate in a country that's very high in any situation, even in highly developed countries like Germany and USA the inflation rate is rising and especially during this year the inflation rate was in most elevated position which is bad for people living in these countries. We are not going to compare Argentina and USA but if you look at the inflation rate of both countries, you can understand bothare having bad situation in same time.