With RBI keeping repo rate unchanged at 6% for the sixth consecutive time in its recent Monetary Policy review, the fixed deposit rates are hovering around 6-7%. Even as top economists say that RBI monetary policy is turning increasingly hawkish, and predict that a 25 bps rate hike may be in the offing, Argentina’s central bank has raised interest rates by 300 bps to fight inflationary pressures. The already high benchmark interest rates in the country has been raised from 27.25 per cent to 30.25 per cent in a bid to prop up its ailing currency from sliding further against the US dollar. Taking stock of the development Nilesh Shah of Kotak AMC says that the country is an example of how mismanaged economic policies can destroy a country. Interestingly, this was in stark contrast to market expectations. “They confused the market this week, and they’re paying for that mistake now. We all know that they don’t have endless firepower,” Edwin Gutierrez, head of emerging-market sovereign debt at Aberdeen Standard Investments in London told Bloomberg.
Earlier in December, the central bank had pursue looser monetary policy to help bolster a nascent economic recovery. Goldman Sachs had noted that the decision was “poorly communicated” and was followed by an ill-timed and controversial 150 basis point rate cut in January in the face of a sharp deterioration of inflation expectations.
The surprise 300-basis point rise comes amid a sharp drop in the value of the Argentine peso. According to a report in The Financial Times, the currency has shed nearly a third of its value against the dollar over the past year, dropping over 10 per cent in the past four months alone.
“The rate should be enough to keep the foreign-exchange dynamics stable.” But any short-term decisions will be tied to whatever happens in the FX market,” Bloomberg reported Mauro Roca, the managing director for emerging markets sovereign research at TCW Group as saying.
