Faced with an inflation that aims to end 2021 around 50%, according to the estimates of the consultants, the Central Bank is studying its first increase in the interest rate in more than a year, as confirmed by sources from the monetary entity to Infobae. While not decided yet, sources noted that surely It will be analyzed “in light of the inflation in November and the change in the rate of devaluation that has been taking place, always within the framework of the harmonization of rates that was carried out since the beginning of the administration”.
It happens in a context in which they seek to bring the costs of loans closer to inflation amid talks with the International Monetary Fund (IMF) about a new financial program. And also in an area where United States Federal Reserve decided to keep its benchmark rates between 0% and 0.25%, although it announced that it will terminate its asset purchase program ahead of schedule amid inflationary pressures, thus opening the door to three increases in its benchmark rate in 2022.
Argentina’s reference rate has been at 38% for 13 months, well below the annual inflation rate of 51%, which leaves the country with a negative real rate of around 13 percentage points, one of the largest in the world.
Economists consulted by Infobae stated that although the interest rate does not reach in isolation as an instrument to lower inflation, if it is important to encourage the incentive to demand for pesos and discourage the dollarization of portfolios and savings in a context in which there is a lack of foreign exchange.
They also highlighted that the rate hike is taking place not only in the United States but that there are already countries in the region such as Brazil and Chile that are raising it to try, along with other measures, to control inflation in a context where there were many incentives to mitigate the consequences of the coronavirus pandemic.
“Faced with the rise in inflation, all the central banks in the world are raising the interest rate as a mechanism to control it. In fact the Federal Reserve of the United States a program to raise the interest rate next year“, He told Infobae Diego Martinez Burzaco, Head of Research at Inviu.
“In addition, many countries in the region are strongly raising interest rates such as Brazil and Chile to control inflation. Argentina should at least imitate that. Especially because the country’s structural problems in terms of demand for pesos, that is, the population’s confidence in the peso, should begin to stabilize with some kind of monetary orthodoxy, something that implies slowing down the issuance to finance the deficit. , raise the interest rate to encourage the incentive to demand pesos and discourage the dollarization of portfolios and savings in a context in which there is a lack of foreign exchange”, He analyzed.
The interest rate has to be a signal to begin to reverse this mistrust against the Argentine peso and above all to attack inflation as part of a comprehensive program (Martínez Burzaco)
For the specialist, raising the interest rate in isolation, without a pragmatic monetary and economic program “is not going to solve anything.”
“The interest rate has to be a signal to begin to reverse this mistrust against the Argentine peso and above all to attack inflation as part of a comprehensive program,” he said.
In that sense, he said that the rate level should be aligned according to inflation. “If you’re going to line up on budget, with 33% inflation, it doesn’t make any sense. You have to fix it with this year’s inflation and correct it ”, he added. It should be remembered that Argentina’s reference rate has been at 38% for 13 months, well below the annual inflation rate of 51%, which leaves the country with a negative real rate of around 13 percentage points, one of the largest in the world.
Gustavo Ber, an economist at the study by the same name, said that the Central Bank should gradually raise the rate in order to cut the current negative real yields and in order to aim at “arouse a greater appetite for placements in pesos”.
“The speed of the rate hike is possibly relatively gradual since said readjustment generates adverse effects on economic activity. A more restrictive monetary policy is a necessary condition to try to correct the accumulated imbalances, and it will surely be within the economic roadmap agreed with the IMF ”, he stated.
Meanwhile, the possible change in the BCRA’s strategy, after 13 months without changes in borrowing costs, would be one week after the IMF asked the country to adopt an “adequate monetary policy”, including interest rates that exceed the inflation.
The speed of the rate hike is likely to be relatively gradual since said readjustment generates adverse effects on economic activity (Ber)
Aldo abram, director of the Fundación Libertad y Progreso told Infobae that “using positive or nominal rate targets with the intention of containing inflation does not make any sense in a country where instability is phenomenal and uncertainty is also phenomenal”.
Interest rates should be set freely. And inflation targets should be set that have been devalued due to the mismanagement of the previous administration. Or rather, quantitative goals for the issuance of money “, he assured while highlighting:”Trying to manage inflation with interest rate targets is useless”.
Meanwhile, the economist from Ecolatina, Juan Pablo Albornoz, He said: “Raising the interest rate to attack the inflationary problem is a manual recommendation: raising it increases the cost of credit, the demand for private credit falls and depresses economic activity. The reluctance to raise the interest rate on the part of the ruling party goes precisely in this line, because it threatens the economic recovery”.
“Although it is necessary to raise the interest rate to counteract inflation, a higher priority still is to reduce the Treasury’s dependence on monetary financing from the Central Bank,” he remarked. And he added that the magnitude of the rise will depend on the speed of the official exchange rate and future inflation expectations.
By last, Claudio Caprarulo, from Analytica Consultora, explained that “the reference interest rate in Argentina is considerably more negative in real terms than that of other comparable economies.” And in that sense, he stated that “Faced with very rigid downward inflation, the logical response is for the Central to increase the nominal rate”.
However, he said that unlike the rest of the countries, Argentina is going through a foreign debt crisis and has very deep exchange restrictions, which means that a rate increase is less effective.