Argentina goes against Latin America and raises interest rates

Argentina is going against the grain of other Latin American countries, which are taking the first steps towards loosening monetary policy in order to be able to resume economic activity. The first to reduce interest rates were Chile and Brazil. And in the sequence should come Peru, Mexico and Colombia.

With inflation expected to reach over 160%, one of the highest in the world, and an expectation of seeing its GDP shrink by 3% this year, according to projections by Itaú, the country had to raise its basic interest rates from 97% to 118% last month.

The movement followed a 22% devaluation of the Argentine peso against the dollar and coincided with the definition of candidates for the presidency of the country, in an election that takes place in October.

XP points out that the main economies of Latin America are in similar monetary policy movements, despite economic activity behaving differently.

Even with the restrictive monetary policy, bank credit to households accelerated in Mexico and remained stable in Brazil. Demand appears to be weakening in Chile and Colombia.

“Despite differences in demand momentum, increasingly tight real interest rates amid falling inflation expectations will allow all economies to ease monetary policy soon,” highlight, in a report, strategists Andres Pardo and Marco Oviedo and economist Francisco Nobre.