The Central Bank of the Argentine Republic on Thursday hiked the benchmark interest rate, Leliq, by 5.5% in order to contain increasing inflation in the country. Following the interest rate hike by the central bank, the interest rate in Argentina currently stands at 75%.
A hike in interest rate is part of the measures implemented by the central bank to control the inflation rate in the country which is nearing 100%. This is the ninth time that the central bank has raised the Leliq rate this year.
According to statistics from August 2022, the annual inflation rate in the Latin American country is standing at 79%. The inflation in the country is increasing at its fastest pace in the last 30 years.
COVID-19 Pandemic and resultant lockdown had pushed Argentina into a lengthy recession period. The Argentinian economy suffered huge losses as the global supply chain crisis and slow economic activity impacted the domestic economy.
The economy of Argentina recovered from a long-standing recession with strong GDP growth as the economy grew by 11.9% during the third quarter of the previous financial year.
The South American country then struck a deal with the International Momentary Fund in which the global financial organisation will lend Argentina a loan of 44 billion US dollars. One of the major elements in the financial deal with the IMF is that the central bank of Argentina will keep its benchmark interest rate above the rate of inflation in the economy.
Even though the interest rates are currently below the level of the inflation rate, Central Bank President Miguel Pesce and Economic Minister Sergio Massa promised in a meeting with IMF representatives that the Latin American country is committed to implementing all points noted in the 44 billion deal. The meeting was conducted a few days ago with the Managing Director of the International Monetary Fund, Kristalina Georgieva.
Adriana Dupita, an economist based in Latin America told news agencies that the recent interest rate hikes by the central bank of Argentina might not be sufficient to control high inflation rates.
Interest rate hikes fail to deliver the desired results the majority of the time as such monetary policy measures have less impact on Latin American economies. The high number of all cash workers and businesses which rely only on cash makes it hard for such monetary measures to make any kind of significant impact.
Along with Argentina, central banks in various other Latin American countries have also resorted to hiking interest rates in the past few months.