The Central Bank has raised interest rates five times so far this year. On August 14, after the devaluation announced by the Government, deposits of up to 30 million pesos have a rate of return of 118% annually, one of the highest in the world. However, and according to economists consulted by PERFIL, this percentage is neither attractive nor effective in containing inflation.
“In Argentina, interest rates are higher than in other countries due to the issue of inflation,” Camilo Tiscornia, director of C&T Economic Consultants, explains to PERFIL. As the increase in interest rates is a “tool that central banks have to control inflation” in countries like Argentina, “which has an inflation rate that runs more than three digits in 12 months, interest rates do not they can be 10% annually”, something that, according to the economist, “explains why here we are talking about rates of more than 100% and in other countries you were talking about rates of 10 or 15%.”
According to the Trading Economics ranking, Argentina occupies second place in the world in terms of interest rates, only behind Zimbabwe, with an annual return of 150% and an interannual inflation of 77.2%. Venezuela is well behind, with a rate of 55.78% and an interannual inflation of 398.2%; Ghana, with rates of 30% and an annual price increase of 43.1%; Democratic Republic of the Congo and Turkey, with rates of 25% and inflation of 26.67% and 47.83%, respectively; and even Ukraine, at war and with an annual interest rate of 22% and an interannual price variation of 11.3%.
“What we have seen in the last year and a half since the conflict between Ukraine and Russia is that as it was anticipated that it would generate inflation, the central banks of the world began to raise their interest rates to control inflation,” explained Tiscornia. .
In addition to containing inflation, interest rates “are the reference for those who have some type of capital to decide whether to keep pesos or buy dollars,” the economist explained. However, he concluded, “with the level of uncertainty that exists” the constant changes in rates “are not a great measure to contain the issue of the movement of the exchange rate and contain inflation, which is going to be very high due to the rise of the exchange rate.”
The Argentine Central Bank increased interest rates twice in March, from 75% to 78%; again in April at 91%; in May to 97% and finally in August, which reached the current 118%. In August of last year, annual interest rates were 69.5%.
“Today Argentines have three ways to get rid of pesos in the face of an inflationary context: buy goods and services, buy dollars or invest the money in a fixed term,” economist Natalia Motyl, director of NM Consultora, explained to this medium. “To prevent the pesos from going to the dollar, in a context of dollar shortage, or to consumption and that puts even more pressure on the general price level, the BCRA constantly raises interest rates,” added Motyl. However, she considers that it is an “effective measure as long as the market believes that it is so,” but “when the market believes that it is unsustainable and that no interest rate is sufficiently attractive, this policy will not work.”
For now, the economist concluded, “we are at a point where the market discounts that there will be a post-election market correction. “So he estimates that there will be a devaluation, so we are at that point where interest rates, even if they are high, are not attractive.”
Economist Salvador Vitelli explained to PERFIL that “although Argentina, in terms of interest rate, is among the countries with the highest nominal rate,” the measure is not effective in containing inflation and safeguarding available dollars, since “ With these levels of inflation and in isolation, without a fiscal, monetary and exchange plan, it does not end up giving too many positive effects, but rather, it ends up strangling activity as a result of the increase in the cost of credit.”
For economist Orlando Ferreres, even though they are high, the current interest rates are not enough: “The inflation rate for August was 12.2% and that of September will be similar, that is, we will have negative interest rates” with respect to inflation. “It could be effective in October where there may be fewer price fluctuations,” he summarized.