The United States applied the highest interest rate hike in 20 years: how does it affect the Argentine economy?

Foto Aldo Abram
Aldo Abram

A24The economic situation of the United States and its problems creates a domino effect that affects the rest of the world. This Wednesday, the Federal Reserve (Fed) raised the interest rate by half a point with the aim of containing the inflationary escalation. In other words, the indicator went from 0.75% to 1%. It is the first time in 22 years that the central bank has raised rates so much.

Argentina will be no exception and will indirectly receive the blows of the economic problems of the North American country.

How does the rise in US rates affect the agreement with the IMF?

Alfredo Schclarek Curutchet, economist and researcher associated with the consulting firm Equilibra, explained to that in principle, the interest rate affected by this increase is the short-term one. As an effect of the measure, it will also impact long-term bonds, such as bonds with a 10-year maturity.

This last rate is what is considered the risk-free interest rate, from which emerging countries that issue bonds or long-term debt are governed. In other words, borrowing is going to become more expensive,” he explained.

In this sense, payment to the International Monetary Fund (IMF) will be governed by higher parameters.

How will trade be affected?

Aldo Abram, economist and Executive Director of the Fundación Libertad y Progreso, told this outlet that since the dollar is the unit of measure in which all tradable goods are quoted, there will be a drop in international prices when compared to a currency that is appreciated.

Dollars are being withdrawn. Thus, the capital they financed is gone. Large buyers have less money and the value of exports is affected. We do not see it in its fullness today because there is a war between two countries that are our direct competitors in the market and were left out, ” said the specialist.

How is the dollar impacted?

Foreign currency fluctuates in the United States and it is normal for the same to happen here. “We must expect it to tend to rise in the world and here as well,” Abram emphasized.

However, there is a second phenomenon in the currency and that is that when capital flows leave emerging countries are affected. In other words, as the United States is taking the lead in raising its interest rates to control inflation, many investors decide to turn to the US market because it suits them.

As the dollar becomes more expensive it strengthens in relation to other national currencies. The immediate consequence is that the exchange rate in Argentina has to rise faster, and therefore purchasing power falls and inflation increases.

In conclusion, an endless circle is generated where the devaluation of the peso, the rise in the exchange rate, inflation and the loss of purchasing power are accentuated by what is happening on the other side of the continent. However, as a positive point, two things can be observed. For one thing, that’s a marginal impact. On the other, that what is happening was what was expected and the market had previously taken it into account.