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Why Argentina Devalued Its Currency, Jacked Up Interest Rates To 118%

Published by Tope Fakinlede on August 14th, 2023.

Why Argentina Devalued Its Currency, Jacked Up Interest Rates To 118%

FCGs reports that Argentina’s central bank devalued its currency, the peso, by close to 18% and hiked its benchmark interest rate by a whopping 21 percentage points to 118% on Monday following a shock primary election win by far-right libertarian Javier Milei.

The moves were a bid by the government to calm markets in the wake of the Argentinian congressman’s surprise victory, which gave him the largest share of votes in the country’s presidential primary election at roughly 30%, far exceeding forecasts.

Markets had been betting on favorable results for moderate candidates. Argentina’s presidential election will be held in October.

Argentinian stocks and its sovereign dollar bonds were also lower Monday.

The central bank said Monday that the peso would be held at 350 to the dollar until the October vote.

Milei, riding on a wave of popular discontent, has vowed to get rid of the central bank and dollarize Argentina’s economy. He has also advocated for sharp spending cuts.

Latin America’s third-largest economy, Argentina has been mired in economic and financial crisis for years. The country’s foreign reserves are shrinking fast and its inflation is forecast at 142.4% for the year.

Argentina is on the brink of its sixth recession in a decade. Milei is a vocal critic of what he calls the corrupt political class, saying the country’s leaders have thrown it from one crisis to another. He believes replacing the peso with the dollar could calm inflation, but many economists warn that would trigger financial chaos.