Rapid-Fire Interest Rate Cuts Continue in Hyperinflationary Argentina
April 25, 2024
The Central Bank of Argentina’s policy interest rate was at 126% when President Milei assumed office last December 10th, promising a draconian tightening of fiscal policy. The rate was lowered to 100% within three days, cut by 20 percentage points three months later, another 10 percentage points two weeks ago. Then today came word of another cut by 10 percentage points to 60%. Consumer price inflation of 211% in December when the rate was reduced initially was already well above the peak central bank rate level. In the 4-1/2 subsequent months while the interest rate was being halved to the new rate of 60%, inflation accelerated more deeply into hyperinflationary territory, defined as anything above 100% per annum.
The latest month of data, March, saw consumer prices recording a 288% leap above year-earlier levels, the most in over 30 years. But central bank officials prefer to focus on the diminishing month-on-month consumer price increases and other indications of improving investor confidence that has occurred as fiscal policy was getting tightened. However, inflation is much more an effect of irresponsibly loose monetary policy than what’s happening on the fiscal side. The speed of interest rate reductions thus appear premature. If former President George H. W. Bush were alive, he’d probably consider Argentine monetary policy as another example of Voodoo Economics in action.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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