Argentina holds rate at world-high 60 percent to fight inflation

By: | Published: September 12, 2018 3:14 PM

Argentina’s central bank kept its key interest rate on Tuesday at 60 percent, the highest in the world, following a surprise hike two weeks ago after the peso plunged.

argentina, argentina currencyInflation has stuck above 30 percent and is set to accelerate on a weaker peso. Even for businesses that buy locally, it’s a struggle to keep up.

Argentina’s central bank kept its key interest rate on Tuesday at 60 percent, the highest in the world, following a surprise hike two weeks ago after the peso plunged. Central bank officials said in their statement that inflation accelerated in August and continues to do so September, citing high-frequency data. They forecast the economy to be in recession this year and next.

They also reaffirmed their commitment from August to not lower rates until December in an effort to stabilize the peso, which is down more than 50 percent so far this year.

Officials hiked rates to 60 percent from 45 percent on August 30 as the peso was in free fall due to uncertainty over Argentina’s plans to cut government spending as part of an agreement with the International Monetary Fund. It was the fifth surprise rate hike so far this year by the central bank, which saw a changing of leadership in June as the currency declined.

In addition to raising rates, Central Bank President Luis Caputo has sold international reserves, raised bank reserve requirements and announced a plan to eliminate a portion of public debt. Argentina’s economy has been thrown off course this year by a historic drought, volatile global markets, communication missteps by its policy makers and, at times, confusing policies. The economy ministry estimates a contraction of at least 1 percent this year.

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