The central bank had to raise its key rate on Thursday, pressed by the rise in the dollar and in the midst of a government crisis. To measure, was expected by the market for last Fridaythe same day that the information on iMarch inflation of 7.7%, the highest in the last 20 years.
The agency’s board delayed the decision, but the climb of the blue this weekwhich came to almost $40 in four days rushed the initiative. With this new adjustment, which only applies to the Leliq rate (reference in the economy) and at forward yields the effective annual rate is 119.4%.
The measure does not come without some political tension. This morning the president of the Centrale, Miguel Angel Pesce, was summoned by Alberto Fernández to the Quinta de Olivos, as was the minister of the Economy, Sergio Massa.
With inflation galloping above 7% a monththe feeling of the Central Bank was that a new rate adjustment in this context was “costly for the economy” AND not so price effective. The market estimates that the money issue associated with this new rate level is about $1 trillion a month to pay interest on interest-bearing liabilities.
Furthermore, the rise in interest rates is usually contractive for the economy, because it implies an increase in the cost of credit for businesses and households. For this reason, this time, as in the last decision of the Central, only the yields of the Leliq and the fixed conditions have been adjusted AND non-active rates, i.e. those applied to loans and credit cards.
In the previous one, the Treasury also had to validate higher rates, in the order of 130%in order to continue to obtain financing from the market, in the midst of a renewed tension on exchange rates and with a growing distrust of investors and savers.
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.