Argentina Raises Interest Rate To 97% As It Struggles To Tackle Inflation

The Central Bank of Argentina raised its key interest rate Monday by six percentage points to 97% in an effort to tackle soaring inflation that has reached 30-year highs.

Central banks across the globe are struggling to rein in inflation, but it’s a particular problem in Argentina, where the annual inflation rate soared above 100% last month.

That’s the highest level since the early 1990s, and currently, Venezuela and Zimbabwe are the only two countries experiencing higher inflation than Argentina, according to International Monetary Fund data. (By comparison, inflation hovers below 5% in the US, where the central bank has raised key interest rates by five percentage points over 14 months.)

Argentina’s central bank is also hoping the rate hike will incentivize investments in the country’s currency, according to the central bank’s statement released Monday. The exorbitant inflation resulted in large outflows of investments held in the Argentine peso, leading to a 23% decline in its value against the US dollar this year.

Ahead of a presidential election set for October, Economy Minister Sergio Massa is focused on avoiding an even bigger devaluation of the currency and containing inflation. He has been seen as a potential third-party candidate since incumbent President Alberto Fernandez announced last month that he won’t seek reelection, and Massa’s success is likely to be tied to the result of this inflation-battling plan.

But the new rate hike is unlikely to bring any real change to Argentinian markets, analysts said.

“The feeling is that the government is completely losing it against inflation,” said Miguel Kiguel, a financial adviser and former deputy manager at the Central Bank of Argentina.

“I fear the government has started to act very late: interest rate hikes are of course the main strategy to combat inflation, but they take time,” Kiguel told CNN en Español on Monday. “When a central bank raises the interest rate, the effects are felt some two or three months afterward, and that timescale is not effective in Argentina’s situation.”

Source: CNN