As inflation reaches a 20-year high, Argentina raises interest rates by 950 basis points to 69.5%.

Image Wikimedia MewMeowth

As the nation fights to control surging inflation, which hit a 20-year high of 71% on Thursday, the central bank of Argentina increased its benchmark interest rate by 950 basis points. The central bank increased the benchmark “Leliq” rate for the 28-day term from 60% to 69.5%. This rate was last changed by the bank just two weeks prior when it increased it by 800 basis points and the government reorganized its Cabinet to appoint a new “superminister” for the economy.

On Thursday, fresh inflation figures highlighted the urgency guiding economic policy: Overestimates, prices increased 7.4% in July, bringing annual inflation to a 20-year high of 71%. The longstanding finance minister for President Alberto Fernandez resigned last month, and his replacement was fired shortly after.

When then-Economy Minister Martin Guzman abruptly quit in July, it ignited a political crisis that had been simmering inside Argentina’s ruling coalition and increased the country’s already high levels of inflation. Silvina Batakis, a little-known economist who took over for Guzman after the president Alberto Fernandez fired him, held the position for just three weeks before Sergio Massa, a skilled politician and one of the leaders of the Peronist coalition, was chosen.

The black-market peso lost around 15% of its value in a single month as a result of the political unrest, and local companies raised their prices by 20% over night.

Massa pledged to halt printing money to pay government spending for the remainder of the year in order to signal a firmer stance against inflation. Government spending is a major driver of inflation. To enhance the fiscal balance, additional policies like cutting electricity bill subsidies stand to keep price increases high in the short term.

According to the most recent central bank survey, economists predict that annual inflation in Argentina will end this year at 90%.

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