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Reuters: Argentina central bank hikes key rate to 133% as inflation worsensArgentina central bank hikes key rate to 133% as inflation worsens

Article published: October 12, 2023

IB Economics Syllabus: Macroeconomics (monetary policy, inflation)

To fight rising inflation, Argentina’s central bank has increased its benchmark interest rate to 133% from 118%. This action comes as the latest inflation data revealed a grimmer-than-expected scenario, with monthly inflation reaching 12.7% and annual inflation soaring to 138%. The central bank’s aggressive rate hike is a response to inflation rates that are diminishing the value of wages and pushing a significant portion of the population below the poverty line. With inflation forecasts predicting a year-end peak of over 180%, the central bank is in a tight race to align interest rates with inflation expectations. However, some analysts are skeptical, suggesting that the rate hike might be too little, too late, as the peso continues to plummet, crossing the psychological threshold of 1,000 pesos per U.S. dollar.

IB Economics (IA) Commentary Suggestions:

This article is a great source for your IAs on the effectiveness of monetary policy in curbing hyperinflation. You can analyze the relationship between interest rates and inflation, and the challenges faced by central banks in extreme economic conditions. The commentary could also explore the broader social implications of hyperinflation and policy responses. In your analysis, you could use the Phillips Curve to illustrate the potential trade-off between inflation and unemployment resulting from the rate increase. Additionally, the Loanable Funds Market diagram could show how the higher interest rates affect borrowing costs and the overall demand for loans. The key concept to focus on is intervention.

Source of image: Agustin Marcarian/File Photo

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