Argentina Hikes Interest Rate to 40 Per Cent as Its Currency Value Continues to Dip

Buenos-Aires, May 5: The Argentina government on Friday hiked the rate of interest by over 40 per cent. The aggressive step was taken by the country's central bank in a bid to revive the value of Peso, the national currency.

Peso began weakening since the onset of this year, with leading global investors pulling out from the South American economy. The crisis intensified after 10-year US treasury yields rose above 3 per cent in late April. Subsequently, the rate of interest was raised to 27.5 per cent on April 27.

Within the next seven days, it was raised to 30.5, 33.7 and ultimately to 40 per cent yesterday.

Analysts claim the value of Peso could not be restored by only raising the interest rate - in a bid to discourage withdrawals. The country needs to address the large twin budget, widening current account deficits, along with a heavy dollar debt burden.

Market experts also claim that the Peso has been kept largely overvalued since decades, which has contributed to the crisis. The currency stood at par with the US dollar till 2001-02. Subsequently, the nation began taking a pro-market turn, which reflected in its valuation of the currency. Currently, 22 Pesos make up 1 US dollar.

Argentine President Mauricio Macri has appealed the people to support his "reform agenda", calling the current measures a "bitter pill" to avoid long-term disasters. He said the government is determined to meet the 15 percent inflation target set for this year. The Opposition, however, has labelled him "anti-people" for taking the drastic measures, including the stoppage of various food and energy subsidies.

(The above story first appeared on LatestLY on May 05, 2018 07:39 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).