Argentina raises interest rate to 60% as peso plunges
Argentina’s Central Bank on Thursday increased its benchmark interest rate to 60%, the world’s highest, in an effort to halt a sharp slide in the value of the peso, which plunged to a record low.
The peso fell more than 15% against the dollar on Thursday, trading at 40.5 per greenback, after slipping about 7% the day before.
The Central Bank said in a statement that it was raising its benchmark interest rate by 15 percentage points to 60% in response to the currency problems and the risk of greater impact on local inflation, which is already running at about 30% a year.
The tumult in the exchange market came a day after President Mauricio Macri said he was asking for an early release of some IMF funds under a 50 billion US dollar (£38 billion) backup financing arrangement approved earlier.
Some experts said the announcement, combined with the interest rate hike, had the unintended effect of fuelling the crisis of confidence.
“I think today’s interest hike announcement will do nothing but leave investors even more jittery,” said Monica de Bolle, senior fellow at the Peterson Institute for International Economics.
Macri has struggled to calm markets and bring confidence to Argentines who continue to lose purchasing power.
Many are frustrated with job losses, higher utility rates and a rise in poverty levels.
Many also have bad memories of the IMF and blame its free-market economic policies for contributing to the country’s worst crisis in 2001-2002, when one in every five Argentines was unemployed and millions fell into poverty.
Seeing journalists filming screens showing the exchange rates in central Buenos Aires, Ruben Montiel, 55, burst out: “Macri is an embarrassment,
“You can’t live like this. The prices of everything go up on a daily basis,” he said. “There’s no work, utility rates have gone through the roof, people are sleeping on the streets.”
Macri, a pro-business conservative who came to office in 2015, had promised to trim Argentina’s fiscal deficit, reduce poverty and curb inflation.
He cut red tape and tried to reduce the government’s budget deficit by ordering layoffs and cutting utility subsidies, but it triggered labour unrest.
Then in December, officials announced a rise in the inflation target, which caused investors to begin doubting Macri’s commitment to taming price rises.
Meanwhile, the peso slumped against the dollar as rising US interest rates lured investors to pull greenbacks out of Argentina.
That caused jitters among Argentines, who have been used to stashing away dollars as a cushion since the 2001 crisis, when banks froze deposits and put up sheet-metal barricades as thousands of protesters unsuccessfully tried to withdraw their savings.
Dozens died in protests and looting in December 2001 as the economy unravelled and Argentina eventually suffered a record 100 billion dollar (£77 billion) debt default.
