On Thursday local time, Argentina's central bank raised its key interest rate by 3 basis points to 69.5%, marking the eighth rate hike this year. The rate hike was the largest since August 2019, indicating that its attitude towards soaring inflation is becoming increasingly aggressive.
In order to combat hyperinflation and alleviate the huge depreciation pressure faced by the Argentine peso , the Central Bank of Argentina has been raising interest rates every month this year, and just announced an 800 basis point interest rate increase two weeks ago. Inflation data released on Thursday showed that Argentina's inflation in March increased by 671% year-on-year, which was about the highest level in three years; increased by 67.4% month-on-month, a new high in 20 years. Argentina's inflation rate has remained at double digits for a long time, and the annualized inflation rate is expected to reach 90% by the end of this year.
The current Argentine Minister of Economy, Sergio Massa, is already the third since early July. Soaring prices, sharp currency depreciation, intensifying social unrest and a political crisis within the government have made the post of Minister of Economy a "hot potato" for the country. Massa is reviving the government's fight against inflation in more traditional terms. In addition to raising interest rates, Massa also promised not to require the central bank to print money this year to fund government spending, which he said was a long-term source of inflation.
But in the past few months, protests have broken out across Argentina. People cannot bear the soaring prices and are demanding that the government restore various subsidies and reconsider whether to cut more subsidies.
Latin American economist Adriana Dupita said that since Massa was announced as the new economic minister, he has raised interest rates by 1,750 basis points, which may help reduce inflation and inflation expectations . The scale will depend on whether Massa will fulfill his promise not to rely on money printing to fund the government and take measures to reduce the fiscal deficit.
The Central Bank of Argentina is selling US dollars and buying pesos every day, consuming an average of 60 million US dollars foreign exchange reserves every day, so that the peso can remain basically stable in the primary foreign exchange market . However, Argentina’s foreign exchange reserves are running low. According to analysis, Argentina’s net foreign reserves (existing U.S. dollar assets minus debt) are about US$2 billion or less.
Latin America's central banks began tightening monetary conditions earlier than most global peers, but prices in the region continue to soar above their targets. Mexico's central bank raised its key interest rate to a record high of 8.5% on Thursday.
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