Argentina raises interest rate to 97% as it struggles to tackle inflation

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Quote from: 19Nov16 on May 22, 2023, 09:20:58 PM

Inflation that is happening in Argentina is of course very worrying, according to the latest data more than 70% of Argentinian people are currently poor, it is time for the country to do big things to immediately deal with inflation, raising interest rates without being followed by economic activity will certainly never be effective.

As of last year, nearly four of every 10 people were poor which means that 39.2% of the population in the second half of 2022 we're poor. If this inflation is not checked more middle-income citizens might go down the poverty line.

Quote from: avikz on May 22, 2023, 10:50:46 PM

Interest rate increase can help if the inflation stays below 20%. Beyond that, the impact of interest rate increase falls drastically. I remember reading a case study on this during my MBA days but can't really locate that material anymore. If the interest rate goes beyond 20%, people usually stop paying EMIs and start defaulting willingly. That puts huge pressure on banks.

The goal for Argentina now to take majority of the money out of circulation to reduce the purchasing power of their citizens to bring down the demand in the market. A drastic step like Demonetization is the only way out it seems. That's the only way to suddenly take out certain denominations from the circulation.

Argentina should also consider the causes of the failure of banks in the US before making monetary policy. Interest rate hikes would reduce spending and encourage contentment among citizens but it will affect business and can give rise to capital flight. Businesses that would have created job opportunities will be starved of the needed support from banks making them close down temporarily or permanently. Some businesses might decide to invest in neighboring countries that have low-interest rates because Argentina might not be conducive. It is very unfortunate how a beautiful and once economically stable nation is struggling to put its economy under control.

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Quote from: Yamane_Keto on May 20, 2023, 05:21:39 AM

Is it really with a feeling of siam and raising interest rates is the solution to reduce inflation? The interest rates strategy is good to combat inflation in the long run, but when a recovery does not occur in the market for two consecutive two, the more interest rate will put more fire on the oil.

What is your recommendation to countries in such cases?

Interest rate increase can help if the inflation stays below 20%. Beyond that, the impact of interest rate increase falls drastically. I remember reading a case study on this during my MBA days but can't really locate that material anymore. If the interest rate goes beyond 20%, people usually stop paying EMIs and start defaulting willingly. That puts huge pressure on banks.

The goal for Argentina now to take majority of the money out of circulation to reduce the purchasing power of their citizens to bring down the demand in the market. A drastic step like Demonetization is the only way out it seems. That's the only way to suddenly take out certain denominations from the circulation.

19Nov16

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Inflation that is happening in Argentina is of course very worrying, according to the latest data more than 70% of Argentinian people are currently poor, it is time for the country to do big things to immediately deal with inflation, raising interest rates without being followed by economic activity will certainly never be effective.

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Quote from: DanWalker on May 21, 2023, 11:42:55 AM

Quote from: DrBeer on May 21, 2023, 08:47:40 AM

Question: for about a year or more, here many have voiced an interesting idea - bitcoin will save the economies of countries that have a problem. The idea boiled down to the fact that cryptocurrency is a panacea and a solution to problems. The main thing to do is to give up the dollar, introduce bitcoin as a means of payment - and that's it, the problems go away!
The question itself is why Argentina does not take advantage of this unique and high-quality solution? Points for and against ?

I'm a bitcoin investor, and it's undeniably good on a personal level, as I said above. But I am not a bitcoin fanatic or a bitcoin maximalist, and consider it divine. So I really doubt the adoption of bitcoin to solve the problem of inflation at the national level. Every country has an economist, and I don't think they are so ignorant that they don't know about bitcoin. But they have never opted for bitcoin, so they must have their reasons.
I've been waiting for someone with a solid knowledge of economics to answer this question. But it's been a day, I don't see many people discussing this, including bitcoin maximalists Grin

.

It's nice when smart people answer! Thank you for your reply!

To paraphrase your answer - in order to believe in such a fake as "Bitcoin will save the world", you must NOT HAVE:
- knowledge of finance
- knowledge on the structure of the financial system of the state
- basic economic knowledge
....and globally do not understand how the state's economy works in general!

I will answer for one thing to many who are looking for the problem of Argentina in the "sinister bourgeois of the West" (external problems) - but you really don’t want to figure out the REAL causes of the problems of this beautiful country ?!

PS ... I will not even open the eyes of "fairy tale lovers" again that today the cryptocurrency market is exclusively speculative. And it can only benefit SMART investors and/or holders of this or that crypto asset!

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It baffles me to see how countries have their economy destroyed this way, I know developed countries are saved from this kind of mess for now but the story of Argentina is a lesson to all, starting from those we elect to govern us, how can inflation be so bad that it hits 3 digits and in actual sense, I believe it is far higher than this. The masses are going to suffer the consequences of these since the government will keep printing money to take care of the people at the top and have access to the little foreign earnings entering the countries. Please people need to wake up and start voting the right people to power, not all these useless politicians, all they do is cause problem and pass it on to the future for future generations to suffer the consequences

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It's like a band aid solution for most countries but still see them getting that inevitable high inflation rate. But at least with this action, the slowing down of inflation is effective as much as we've seen so these countries got great economists and that's how they come up with such solution. I'm no economists and with such, there's always the domino effect for doing so. We may see the short term solution of increasing interest rates but it won't be as effective as it is in the long term so they have to come up with other solutions wherein, that should have been planned while the effect of interest rates is still there. With what I am seeing, it is the people that are trying to look for solutions on their own like going and working abroad and have that remittances sent to their left relatives.

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I have got some people I know living in Argentina and I can confirm that asking for a loan there is completely insane. In the end it is not worth it, people can end up paying the double what they asked for.

In that case, what people do is to ask for private loans in USD, gold, Bitcoin, USDT or any asset which is more stable in comparison to the Argentinian peso, so the interest rates can be handled within the normal range of 1%-10%, depending on the terms on the deal and whether there is collateral or not.

This is just another indication on how a currency becomes obsolete and lose its main utility: it cannot be used anymore to store value, and cannot be used anymore to transact debt. At this pace the people of argentina will end up dishing completely their currency for anything else.

DanWalker

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Quote from: DrBeer on May 21, 2023, 08:47:40 AM

Question: for about a year or more, here many have voiced an interesting idea - bitcoin will save the economies of countries that have a problem. The idea boiled down to the fact that cryptocurrency is a panacea and a solution to problems. The main thing to do is to give up the dollar, introduce bitcoin as a means of payment - and that's it, the problems go away!
The question itself is why Argentina does not take advantage of this unique and high-quality solution? Points for and against ?

I'm a bitcoin investor, and it's undeniably good on a personal level, as I said above. But I am not a bitcoin fanatic or a bitcoin maximalist, and consider it divine. So I really doubt the adoption of bitcoin to solve the problem of inflation at the national level. Every country has an economist, and I don't think they are so ignorant that they don't know about bitcoin. But they have never opted for bitcoin, so they must have their reasons.
I've been waiting for someone with a solid knowledge of economics to answer this question. But it's been a day, I don't see many people discussing this, including bitcoin maximalists Grin

.

DrBeer

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Question: for about a year or more, here many have voiced an interesting idea - bitcoin will save the economies of countries that have a problem. The idea boiled down to the fact that cryptocurrency is a panacea and a solution to problems. The main thing to do is to give up the dollar, introduce bitcoin as a means of payment - and that's it, the problems go away!
The question itself is why Argentina does not take advantage of this unique and high-quality solution? Points for and against ?

be.open

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Quote from: Yamane_Keto on May 20, 2023, 05:21:39 AM

What is your recommendation to countries in such cases?

By itself, raising the key rate in the fight against inflation is effective only in the range up to about 20%. A further increase in the key rate has an extremely negative effect on the economy, effectively killing all commercial production; at a rate above 20%, only short-term trading and speculative activities can be profitable. If the Central Bank raised the rate to 20% and this did not help defeat inflation, it is necessary not to continue raising the key rate, but to use other methods to combat inflation, for example, control over the export of capital. In general, the fight against double-digit inflation should be comprehensive. The situation in Argentina suggests that absolutely incompetent people are working in the Government to solve the problem (or the Government is engaged in sabotage), and the Government should be immediately dismissed in its entirety.

It is also possible that Argentina has become dangerously dependent on the IMF, which is often fond of issuing loans in combination with destructive political conditions.

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Argentina is as clueless as any other country whose economy is crumbling before its face. How they get themselves into this situation is what I find difficult to understand, as if they do not have any economist brain that is viable in the country. If they can't fix the situation themselves, there is no shame in importing expatriates with tract records from foreign lands.

Can you imagine, they believe that the action would "incentivize investments in the country’s currency," How lame is that? They will always find excuses for their idiocies.

What is called "Policy" is very important in a country's health and welfare, when misused, then it will set the whole country in disarray just as we see now.

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Quote from: ?? on ??

Increasing interest rates as a measure to combat inflation is considered one of the most dangerous measures, since its results are regressive on several levels, regardless of its economic situation. In addition to the high prices of products, high interest rates will affect the flow of foreign investment into the country, and the economies associated with that country will be negatively affected by relying on the export or import of a particular product completely.

But besides raising interest rates, do we have other effective solutions to reduce inflation without causing pain? I'm not an economist so I can't really think of any ideas for reducing inflation other than raising interest rates. Raising interest rates is a solution that has been used for many years to control inflation and has been effective many times. As we can see, the US is adopting it, and their inflation is falling, but I don't understand why other countries like Argentina or Turkey raising interest rates isn't working for them.

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Quote from: Yamane_Keto on May 20, 2023, 05:21:39 AM

What is your recommendation to countries in such cases?

There isn't anything much to do if you're the central bank of Argentina but for raising interest rates. Argentina's been in recession for years now. The inflation crisis's been around and was made worse since COVID because they printed too much money to fund social programs while their economy was neutered.

If they were so inclined, they could let the economic crisis playout without government intervention and let things stabilize on their own. Once new currency units are introduced, there isn't much you can do to control inflation but allowing prices to increase. Taking money out of circulation is just about impossible which is why they shouldn't be generated in the first place.

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Quote from: DanWalker on May 20, 2023, 09:34:20 AM

Quote from: kryptqnick on May 20, 2023, 09:09:44 AM

Argentina's economic situation has been terrible for a long time, and huge inflation is among the issues that have been around for a while there as well. It's a vicious circle, as they keep printing the currency, trying to make the situation better, but that only makes it worse because the inflation keeps rising.
I'm not an economist, so I don't know how such a terrible situation can be reasonably managed, but I'd try something experimental, such as adopting Bitcoin as a legal tender (El Salvador style). Bitcoin's instability is actually likely to be a big relief compared to the fiat inflation there, and it's a currency that's at least very different and can't be driver to hyperinflation. I honestly think that while it might not solve everything, it won't hurt and might even help.

I'm thinking about this too, because bitcoin is designed to be an inflation hedge. But I don't know if it is correct to use bitcoin in this case and will it solve a country's inflation? Bitcoin is so volatile, will it further harm the economy, or will it actually benefit a country? It can be seen that applying bitcoin to personal finance is really effective and can help us avoid inflation in the long run. But for a national economy, that's not simply going to solve the problem. I hope someone really knowledgeable about economics can explain this.

This is very interesting, I also hope someone knowledgeable enough in economics can explain this. That's well worth the attention, but I don't expect the bitcoin maximalists here to speak thoughtless and exaggerated words about bitcoin without any economic knowledge. On an individual level, there's no denying the benefits of bitcoin, but on a large scale like a country's economy, it's a different story.

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Quote from: Oshosondy on May 20, 2023, 06:54:18 AM

Interest rate can help because increase in interest rate is indirectly connected to decrease in spending of foreign reserve. If spending of the foreign reserve too much is discouraged, it can help control inflation. But it is like tackling inflation from the top or middle, not from the root.

The main cause of inflation is because a country is depending on other countries too much, depending on their services and products. The countries that is having inflation use more of their foreign reserves to buy from other countries and they increase the price of the local currencies to make the foreign currencies stronger and higher in price. Turkey dependent on other countries in Europe and other countries is the main cause of their problem.

Increase in interest rate can help reduce inflation for sometimes, but as Turkey still far more depend on other countrys' imports, they are solving nothing.

Interest rates and foreign reserves: When a country increases its interest rates, it can make borrowing more expensive, which can indirectly discourage spending of foreign reserves. This can help control inflation to some extent by limiting excessive spending. However, it's worth noting that interest rates alone are not the sole determinant of a country's spending behavior.

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Quote from: kryptqnick on May 20, 2023, 09:09:44 AM

Argentina's economic situation has been terrible for a long time, and huge inflation is among the issues that have been around for a while there as well. It's a vicious circle, as they keep printing the currency, trying to make the situation better, but that only makes it worse because the inflation keeps rising.
I'm not an economist, so I don't know how such a terrible situation can be reasonably managed, but I'd try something experimental, such as adopting Bitcoin as a legal tender (El Salvador style). Bitcoin's instability is actually likely to be a big relief compared to the fiat inflation there, and it's a currency that's at least very different and can't be driver to hyperinflation. I honestly think that while it might not solve everything, it won't hurt and might even help.

I'm thinking about this too, because bitcoin is designed to be an inflation hedge. But I don't know if it is correct to use bitcoin in this case and will it solve a country's inflation? Bitcoin is so volatile, will it further harm the economy, or will it actually benefit a country? It can be seen that applying bitcoin to personal finance is really effective and can help us avoid inflation in the long run. But for a national economy, that's not simply going to solve the problem. I hope someone really knowledgeable about economics can explain this.

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Quote from: stompix on May 20, 2023, 09:04:52 AM

Maybe it's Fahrenheit? Roll Eyes

Quite the coincidence but 97F is around the normal human body temperature, so, it makes sense, they are heating up the workers to be more productive! Grin

The OP seems to be on the right track, the numbers may be strange and the units are wrong, but in today's world interest rates and temperature can be in some strange correlation Cool

Quote from: stompix on May 20, 2023, 09:04:52 AM

How about not, people who have f**** their own country with their stupid votes should stay there rather than go to a different country and do the same, but it's a bit too late, it's already happening as I see the ones fleeing collapsing countries for a better life here advocating for the same stuff that made them flee in the first place.

The thing is that people who elect a bad government do not actually leave the country, because they do it out of personal interest and it is good for them that corruption and nepotism continue, of course from the party that enables them to do so. In addition, people who have come to another country do not have the right to vote in elections because they are foreign citizens, so they are not the ones who can change anything, except that they can irritate the local population with their behavior.

I say this from the perspective of a small man who is not part of the ruling elite, and all his life he is told that he must make sacrifices and that he will get better - but in fact his life is getting worse, and the only way to change that is to go to another country.

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Argentina's economic situation has been terrible for a long time, and huge inflation is among the issues that have been around for a while there as well. It's a vicious circle, as they keep printing the currency, trying to make the situation better, but that only makes it worse because the inflation keeps rising.
I'm not an economist, so I don't know how such a terrible situation can be reasonably managed, but I'd try something experimental, such as adopting Bitcoin as a legal tender (El Salvador style). Bitcoin's instability is actually likely to be a big relief compared to the fiat inflation there, and it's a currency that's at least very different and can't be driver to hyperinflation. I honestly think that while it might not solve everything, it won't hurt and might even help.

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Quote from: Lucius on May 20, 2023, 07:58:12 AM

You've mixed things up a bit, because what does celsius have to do with interest rates, unless you think some people got a fever from a 6% increase Roll Eyes

Maybe it's Fahrenheit? Roll Eyes

Quite the coincidence but 97F is around the normal human body temperature, so, it makes sense, they are heating up the workers to be more productive! Grin

Quote from: Lucius on May 20, 2023, 07:58:12 AM

anyone who wants to be saved should leave such a country as soon as possible.

How about not, people who have f**** their own country with their stupid votes should stay there rather than go to a different country and do the same, but it's a bit too late, it's already happening as I see the ones fleeing collapsing countries for a better life here advocating for the same stuff that made them flee in the first place.

Lucius

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Quote from: Yamane_Keto on May 20, 2023, 05:21:39 AM

On Venezuela and Zimbabwe's linear and after the federal raised the main interest rates by five percentage points over the past months, the Argentine Central Bank raised the main interest rate on Monday by six degrees Celsius to 97 % in an attempt to treat high inflation that reached its highest level in 30 years.

You've mixed things up a bit, because what does celsius have to do with interest rates, unless you think some people got a fever from a 6% increase Roll Eyes

Quote from: Yamane_Keto on May 20, 2023, 05:21:39 AM

What is your recommendation to countries in such cases?

I would recommend that people stay in the shade as much as possible, because such high temperatures are not at all good for health Cool

Joking aside, there's nothing clever to say when things are going downhill, and there don't seem to be too many people in that country who think that something can be changed. Bad politicians and the people who elect bad politicians are a disastrous combination, I have personal experience with such a society and the only smart thing I can say is - anyone who wants to be saved should leave such a country as soon as possible.

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Quote from: Yamane_Keto on May 20, 2023, 05:21:39 AM

Is it really with a feeling of siam and raising interest rates is the solution to reduce inflation? The interest rates strategy is good to combat inflation in the long run, but when a recovery does not occur in the market for two consecutive two, the more interest rate will put more fire on the oil.

It worked for the US it worked for Europe despite being in the small single-digit area, it has been proven a lot of times during the last century and there is little to debate, making money more expensive for borrowers drives down consumption and inflation, it's simply economics.

Quote from: Yamane_Keto on May 20, 2023, 05:21:39 AM

What is your recommendation to countries in such cases?

In Argentina's case?
Pretty simply, make a list of all the things that have been done by the government since the 50s last century, and don't do any of them again!
It will end far better than the current path. But more realistically, just flee the country, it's doomed to be in a perpetual loop of crisis.

Quote from: Oshosondy on May 20, 2023, 06:54:18 AM

The main cause of inflation is because a country is depending on other countries too much, depending on their services and products. The countries that is having inflation use more of their foreign reserves to buy from other countries and they increase the price of the local currencies to make the foreign currencies stronger and higher in price. Turkey dependent on other countries in Europe and other countries is the main cause of their problem.

Then, why is Japan not experiencing inflation despite being dependent on imports and why is the US having inflation when, d'oh, they can just print it?
Besides, how could Turkey be 20 times more dependent on imports than all the countries in Europe?
Inflation is simply a cause of more demand and less offer, we have just entered a period of consumption after the lockdowns and the industry with the broken logistics chains can't revamp production as easily as customers decide to spend money.

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Quote from: Yamane_Keto on May 20, 2023, 05:21:39 AM

What is your recommendation to countries in such cases?

Interest rate can help because increase in interest rate is indirectly connected to decrease in spending of foreign reserve. If spending of the foreign reserve too much is discouraged, it can help control inflation. But it is like tackling inflation from the top or middle, not from the root.

The main cause of inflation is because a country is depending on other countries too much, depending on their services and products. The countries that is having inflation use more of their foreign reserves to buy from other countries and they increase the price of the local currencies to make the foreign currencies stronger and higher in price. Turkey dependent on other countries in Europe and other countries is the main cause of their problem.

Increase in interest rate can help reduce inflation for sometimes, but as Turkey still far more depend on other countrys' imports, they are solving nothing.

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On Venezuela and Zimbabwe's linear and after the federal raised the main interest rates by five percentage points over the past months, the Argentine Central Bank raised the main interest rate on Monday by six degrees Celsius to 97 % in an attempt to treat high inflation that reached its highest level in 30 years.

Quote

Argentina’s central bank is also hoping the rate hike will incentivize investments in the country’s currency, according to the central bank’s statement released Monday. The exorbitant inflation resulted in large outflows of investments held in the Argentine peso, leading to a 23% decline in its value against the US dollar this year.

Ahead of a presidential election set for October, Economy Minister Sergio Massa is focused on avoiding an even bigger devaluation of the currency and containing inflation. He has been seen as a potential third-party candidate since incumbent President Alberto Fernandez announced last month that he won’t seek reelection, and Massa’s success is likely to be tied to the result of this inflation-battling plan.

But the new rate hike is unlikely to bring any real change to Argentinian markets, analysts said.

“The feeling is that the government is completely losing it against inflation,” said Miguel Kiguel, a financial adviser and former deputy manager at the Central Bank of Argentina.

source: https://edition.cnn.com/2023/05/15/business/argentina-interest-rates-inflation/index.html

Is it really with a feeling of siam and raising interest rates is the solution to reduce inflation? The interest rates strategy is good to combat inflation in the long run, but when a recovery does not occur in the market for two consecutive two, the more interest rate will put more fire on the oil.

What is your recommendation to countries in such cases?

Topic: Argentina raises interest rate to 97% as it struggles to tackle inflation (Read 228 times)