The Central Bank prepares a new interest rate hike

The Central Bank is preparing to apply a new rise in the interest rate and could raise it above 100% in annual effective terms. The Government awaits the inflation data for August to advance in the correction of the rate and continue with the goal of keeping it at real positive levels. It would be the ninth increase so far this year.

as far as he could tell The uncoveringThe economic team awaits the results that INDEC will release on the Consumer Price Index for August, which is expected to be between 6% and 7%. In order to maintain positive levels for savers, The monetary authority led by Miguel Pesce could validate the ninth rate increase so far this year on September 14, when inflation is revealed.

If the forecasts regarding the rise in prices are confirmed, the correction that the BCRA would set would start from 300 basic points and stretch to 500, leaving the reference rate in a margin between 72% and 74%. In mid-August, the Central Bank increased the monetary policy rate by 950 basis points, which went from 60% to 69.5% per year, the highest rise since the beginning of the administration in 2019 and accumulated an increase of 1,750 basis points.with the aim of achieving a decrease in inflation and stimulating savings in pesos to the detriment of the dollar.

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Currently, this rise represented a yield of 96.5% in effective annual terms, while the rest of the fixed-term deposits of the private sector (individuals or companies) remained under a guaranteed minimum rate of 61%, which means a rate effective annual rate of 81.3%.

The government’s strategy is guarantee an instrument that seduces savers and reduces the demand for dollars in the midst of an exchange crisis that is depleting reserves. On the other hand, the cost assumed by this decision is to slow down economic activity due to the consequent retraction of credits to the SME apparatus, due to the natural increase in interest rates. Another negative factor is the negative impact on the level of consumption of families, so the last quarter of the year is not expected to show great results in this regard, a time of year when purchases tend to increase and even more so with the World Cup. from Qatar in between.

The agreement with the IMF contemplates that the dollar has to maintain the level of competitiveness throughout the yearfor which it must accompany the rise in domestic prices with increases in the exchange rate. To prevent this from causing a greater demand for foreign currency as hoarding, the country has also committed to keeping the system’s interest rates above both.

United States presses

The president of the Federal Reserve (FED), Jerome Powell, confirmed that the entity will continue with a restrictive monetary policy “for some time”, with the aim of “restoring price stability”, and anticipated possible rate hikes. so far this year, the Central Bank always applied a subsequent increase to this type of decisionfor which it could be interpreted as an anticipation of the movements of the authority.

Thus, Powell confirmed that the FED will continue to raise the reference interest rate, for which a new increase is expected at the next FED monetary meeting on September 20 and 21. So far this year and to cool down the inflation numbers, the entity ordered a rise in the reference interest rates of 25 percentage points in March, 50 in May, 75 in June and another 75 in July, taking it from levels close to zero to a range between 2.25% and 2.50%.

In turn, he acknowledged: “Although higher interest rates, slower growth and a softening of the labor market will allow inflation to fall, it will also hurt households and companies a little.” According to FED estimates, interest rates will rise to 3.4% by the end of this year and 3.8% by the end of 2023.

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