Every month, the inflation Argentina, with 102.5% on an annual basis in February, leads the world ranking. In February, she ranked fourth, second only to ZimbabweLebanon and Venezuela.
But there is another indicator, closely linked to inflation, which also makes the country stand out in international lists: the monetary policy reference interest rate. That number is then used to set other rates in the economy (fixed terms, loans).
Thus, with 78%, the Argentine rate is only below that of Zimbabwe, which last month lowered it from 200 to 150% (with inflation of 230% year on year in January).
recently the African country adopted a mixed price index which tracks both dollar and local currency costs (75% of transactions occur on a dollar price basis, according to Bloomberg).
They close the top five of the countries with the highest rates Venezuela (56.97%), Ghana (29.50%) and Ukraine (25%).
They are, in all cases, very high ratings. Know the “real” rate must be deducted for inflation.
One of the Monetary Fund guidelines for the Argentine economy it was that the interest rate was real, that is, it beat inflation.
Like prices, which are also rising in the world after the pandemic, but at much lower values, the interest rate also has a upward trend in the rest of the main countries of the world, with the United States in the lead (from 4.50 to 5%).
Raising rates is a tool to contain inflation (the money goes to rates instead of investments and spending, there is less demand for goods and activity cools down). In Argentina he lost that role and It is used to prevent pesos from going to the dollarA. So, the reasons for the rate hike here are “decoupled” from the rest of the planet.
“We are isolated from the world as far as rates are concerned. Globally, there has been a sharp increase over the past year to fight inflation, which has arisen after post-pandemic programs and currency issuance,” she explains. Sebastian Menescaldiassociate director of EcoGo consultancy.
“Raising rates around the world would have an impact on Argentina if you had an open credit market and businesses and government are taking in cash flows because when rates rise in core markets, funds leave emerging economies and local currencies depreciate,” the economist explains.
But since Argentina has lost external credit and, moreover, has installed stockpiles, the increase in tariffs abroad affects only indirectly. “It will double the amount of interest that will have to be paid to the IMF and hit us through lower growth from our trading partners and lower prices for commodities, such as soybeans or corn,” warns Menescaldi.
Internally, the central bank’s decision to raise the rate aims “to keep demand for pesos from collapsing, to keep people from running to the dollar,” he says. According to his calculations, the annual rate of 78% in effective terms exceeds 100% and is on par with the pace of inflation, maybe a little below.”
Only for a short time, at the beginning of Mauricio Macri’s government, was Argentina not free from rates in the world, Menescaldi recalls. In the rest of the region, the movement of rates yes, it follows the international logic inflation control.
Charles Arterburn is a seasoned business journalist for News Rebeat, where he provides comprehensive coverage of the latest trends and developments in the world of finance and economics.