Economy

Infographic: Real interest rates going negative

9th January 2020

By The Essential Staff

Infographic: Real interest rates going negative

One of the more anticipated changes in economic policy in the case of an Alberto Fernández presidential win was the lowering of the Central Bank’s 7-day Leliq note reference rates, criticized for slowing down the economy and piling on new debt into the monetary authority’s balance sheet during Mauricio Macri’s administration.

</p> <img class="wp-image-6711 aligncenter" src="https://gettheessential.com/wp-content/uploads/2020/01/9-jan-300x224.jpg" alt="Real interest rates have gone from strongly positive to negative since the change of government" width="613" height="458" srcset="https://gettheessential.com/wp-content/uploads/2020/01/9-jan-300x224.jpg 300w, https://gettheessential.com/wp-content/uploads/2020/01/9-jan-1024x765.jpg 1024w, https://gettheessential.com/wp-content/uploads/2020/01/9-jan-768x574.jpg 768w, https://gettheessential.com/wp-content/uploads/2020/01/9-jan-600x449.jpg 600w, https://gettheessential.com/wp-content/uploads/2020/01/9-jan.jpg 1200w" sizes="(max-width: 613px) 100vw, 613px" /> <p>High interest rates began in late 2015 with Federico Sturzenegger, but were adjusted downwards late in 2017, following a joint press conference between Sturzenegger, then Economy Minister Nicolás Dujovne and then Cabinet Chief Marcos Peña, which some analysts saw as a sign of Executive Power interference in what was supposedly an independent Central Bank. (In practice, Central Banks have rarely been independent from Argentina&#8217;s Executive).</p> <p>After a 2018 in which Argentina lost access to international debt markets and saw a run against its currency, the Central Bank kept adjusting nominal rates upwards to keep up with rising inflation, ending with rates above 70 percent at several points in time (with a peak of 85), 20 percentage points above inflation, in a bid to try to tempt investors into keeping peso-denominated assets in their portfolios.</p> <p>With the re-introduction of the <a href="https://gettheessential.com/economy/2019/09/05/macri-re-imposes-ban-on-dollar-purchases-as-crisis-reaches-banks-currency-controls-argentina-cepo-clamp">ban on foreign currency purchases</a> after August&#8217;s primary elections, and its further tightening after the final vote in October, demand for the peso was artificially increased, opening room for lower rates, in line with Fernández&#8217;s campaign promises. Miguel Pesce, his appointment at the Central Bank, has followed suit by cutting rates to 55 percent, on par with 2019 inflation and below the annualized inflation seen over the last three months.</p> <p>In an <a href="https://www.bloomberg.com/news/articles/2020-01-08/argentina-central-bank-seeks-to-cut-rates-and-slow-inflation">interview with Bloomberg</a> yesterday, Pesce said rates would continue to be cut in January. “High rates didn’t have the effect of slowing inflation and they were creating a sharp recessionary effect,&#8221; Pesce said.</p> <p>

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The Essential Staff

The Essential is a premium subscription-based news platform that brings you high quality journalism and in-depth coverage in English about the changing face of Argentina’s politics and economy.